Occupier activity across the Unites States continues to be robust, particularly in bulk industrial space 100,000 square feet and larger. In 2018, 1,406 industrial (warehouse, manufacturing, flex) new lease and...

Occupier activity across the Unites States continues to be robust, particularly in bulk industrial space 100,000 square feet and larger. In 2018, 1,406 industrial (warehouse, manufacturing, flex) new lease and sale transactions signed in spaces 100,000 square feet and larger, totaling 374 million square feet—slightly lower than the 385 million square feet signed the 12 months prior. The average size of a bulk transaction was 266,000 square feet—much higher than the 242,000 square feet average the previous year. The increase in size range was a direct result of third-party logistics and packaging companies (3PLs) and automotive-related companies taking larger chunks of space compared with the same time last year.
While e-commerce occupiers continue to get the press, they only made up 11% of the transactions signed the past 12 months; this is in line with the percentage of total retail sales e-commerce accounts for. 3PLs were the top new occupiers of space in 2018 signing 115 million square feet of bulk industrial deals, 31% of the total transactions. 3PLs who offer logistics and warehousing services for retailers and wholesalers who choose to outsource, remain the top occupier of industrial space because of the sheer volume of companies who service every industry in the business. The top 3PL occupiers the past 12 months were UPS and XPO Logistics, who both signed transactions totaling more than five million square feet.
E-commerce occupiers continue to require buildings much larger than other occupier types, as the average e-commerce transaction the past year totaled 496,000 square feet, nearly double the overall average transaction size for a bulk industrial building. For the fourth consecutive year, Amazon.com was not only the top e-commerce occupier of industrial space but also the top overall occupier, with transactions totaling more than 19 million square feet. Walmart also continued to expand its e-commerce distribution capabilities, signing 2.4 million square feet of new deals. While that is good enough for 10th in the country, it is only 10% of the distribution space Amazon occupies. Walmart is not leasing the same amount of space as Amazon because it can use its vast inventory of big-box retail stores across the country as final-mile distribution centers.
The Midwest overtook the Southeast as the top region of choice for bulk industrial occupiers, with 27% of the bulk transactions signed in the region. Both industrial and manufacturing occupiers continue to move into the market in droves because of the region’s pro-business climate and significant logistics advantages. The Southeast region is still doing well as occupiers move into the region to support the growing population. At the time of this report, more than 70 million people lived in the Southeast region, and this is expected to grow by a nation-leading 7% over the next five years. The West region finished in third, thanks to continued strong demand in West Coast port markets including Los Angeles, the Bay Area and Seattle. The Inland Empire remains the top market in the country for bulk-leasing activity, while markets including Phoenix, Sacramento and Las Vegas are some of the fastest growing markets in the country. All of these markets contributed to nearly 90 million square feet of deals in the past 12 months.
Transaction volume for bulk industrial space will remain robust over the next 12 months because of occupiers increasing need for both regional and “final-mile” bulk distribution centers. While 3PLs and retail-related distribution volume will remain robust, look for strong growth in the food, beverage and pet supply industry, as many of these occupiers are looking to expand and modernize their distribution and manufacturing networks. Population growth will keep occupiers in all industries looking at space in the Southern and Western portions of the U.S. while improvements and expansions of inland and coastal logistics hubs as well as strong domestic manufacturing in the Northeast and Midwest will keep demand strong in these regions for the foreseeable future.
Company Type Description:

Construction, Improvement, and Home Repair – Warehousing and distribution of materials used in residential and commercial construction, improvements, and repair.

Data Centers/Tech/Engineering – The use of industrial space for data centers and non-pharmaceutical R&D purposes.

E-Commerce – Warehousing and distribution of product that is primarily ordered online and shipped directly to the end consumer.

Furniture and Appliances – Warehousing and distribution of retail and/or wholesale furniture and appliance products. Could contain some e-commerce and or manufacturing components.

General Retail and Wholesale – The warehousing and distribution or retail and/or wholesale products not listed in any of the other categories. Could contain some e-commerce or manufacturing components.

Manufacturing – Industrial space used for manufacturing and/or storage of raw materials and equipment used in the manufacturing of non- automobile related products.

Third-party Logistics and Packaging – Third-party logistics and packaging of a wide variety of products.

James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.]]>

Occupier activity across the Unites States continues to be robust, particularly in bulk industrial space 100,000 square feet and larger. In 2018, 1,406 industrial (warehouse, manufacturing, flex) new lease and...

Occupier activity across the Unites States continues to be robust, particularly in bulk industrial space 100,000 square feet and larger. In 2018, 1,406 industrial (warehouse, manufacturing, flex) new lease and sale transactions signed in spaces 100,000 square feet and larger, totaling 374 million square feet—slightly lower than the 385 million square feet signed the 12 months prior. The average size of a bulk transaction was 266,000 square feet—much higher than the 242,000 square feet average the previous year. The increase in size range was a direct result of third-party logistics and packaging companies (3PLs) and automotive-related companies taking larger chunks of space compared with the same time last year.
While e-commerce occupiers continue to get the press, they only made up 11% of the transactions signed the past 12 months; this is in line with the percentage of total retail sales e-commerce accounts for. 3PLs were the top new occupiers of space in 2018 signing 115 million square feet of bulk industrial deals, 31% of the total transactions. 3PLs who offer logistics and warehousing services for retailers and wholesalers who choose to outsource, remain the top occupier of industrial space because of the sheer volume of companies who service every industry in the business. The top 3PL occupiers the past 12 months were UPS and XPO Logistics, who both signed transactions totaling more than five million square feet.
E-commerce occupiers continue to require buildings much larger than other occupier types, as the average e-commerce transaction the past year totaled 496,000 square feet, nearly double the overall average transaction size for a bulk industrial building. For the fourth consecutive year, Amazon.com was not only the top e-commerce occupier of industrial space but also the top overall occupier, with transactions totaling more than 19 million square feet. Walmart also continued to expand its e-commerce distribution capabilities, signing 2.4 million square feet of new deals. While that is good enough for 10th in the country, it is only 10% of the distribution space Amazon occupies. Walmart is not leasing the same amount of space as Amazon because it can use its vast inventory of big-box retail stores across the country as final-mile distribution centers.
The Midwest overtook the Southeast as the top region of choice for bulk industrial occupiers, with 27% of the bulk transactions signed in the region. Both industrial and manufacturing occupiers continue to move into the market in droves because of the region’s pro-business climate and significant logistics advantages. The Southeast region is still doing well as occupiers move into the region to support the growing population. At the time of this report, more than 70 million people lived in the Southeast region, and this is expected to grow by a nation-leading 7% over the next five years. The West region finished in third, thanks to continued strong demand in West Coast port markets including Los Angeles, the Bay Area and Seattle. The Inland Empire remains the top market in the country for bulk-leasing activity, while markets including Phoenix, Sacramento and Las Vegas are some of the fastest growing markets in the country. All of these markets contributed to nearly 90 million square feet of deals in the past 12 months.
Transaction volume for bulk industrial space will remain robust over the next 12 months because of occupiers increasing need for both regional and “final-mile” bulk distribution centers. While 3PLs and retail-related distribution volume will remain robust, look for strong growth in the food, beverage and pet supply industry, as many of these occupiers are looking to expand and modernize their distribution and manufacturing networks. Population growth will keep occupiers in all industries looking at space in the Southern and Western portions of the U.S. while improvements and expansions of inland and coastal logistics hubs as well as strong domestic manufacturing in the Northeast and Midwest will keep demand strong in these regions for the foreseeable future.
Company Type Description:

Construction, Improvement, and Home Repair – Warehousing and distribution of materials used in residential and commercial construction, improvements, and repair.

Data Centers/Tech/Engineering – The use of industrial space for data centers and non-pharmaceutical R&D purposes.

E-Commerce – Warehousing and distribution of product that is primarily ordered online and shipped directly to the end consumer.

Furniture and Appliances – Warehousing and distribution of retail and/or wholesale furniture and appliance products. Could contain some e-commerce and or manufacturing components.

General Retail and Wholesale – The warehousing and distribution or retail and/or wholesale products not listed in any of the other categories. Could contain some e-commerce or manufacturing components.

Manufacturing – Industrial space used for manufacturing and/or storage of raw materials and equipment used in the manufacturing of non- automobile related products.

Third-party Logistics and Packaging – Third-party logistics and packaging of a wide variety of products.

James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.]]>https://knowledge-leader.colliers.com/james-breeze/occupier-activity-remains-robust-in-2018-thanks-to-3pl-activity/feed/0Where Else is America’s Tech Talent?https://knowledge-leader.colliers.com/editor/where-else-is-americas-tech-talent/
https://knowledge-leader.colliers.com/editor/where-else-is-americas-tech-talent/#respondTue, 15 Jan 2019 16:30:46 +0000http://knowledge-leader.colliers.com/?p=7462

Silicon Valley has long claimed the spotlight as the epicenter of tech in the United States, but there is tech life beyond Palo Alto. So, where else are we seeing...

Silicon Valley has long claimed the spotlight as the epicenter of tech in the United States, but there is tech life beyond Palo Alto. So, where else are we seeing a strong tech presence in America? The answer may surprise you. Salt Lake City, in particular, boasts a rich education and tech history with business-friendly policies, making it a hot spot for tech talent and growth.

Utah’s Tech History

With strong computer science programs, the universities in the Salt Lake City area have produced noteworthy tech talent over the years. Nolan Bushnell, the founder of Atari, claims the University of Utah as his alma mater. Novell, an early competitor of Microsoft in the 1980’s and 90’s was created by Ray Noorda and Drew Major, graduates of the University of Utah and Brigham Young University (BYU) respectively. Additionally, WordPerfect, an early competitor of Microsoft Word, was developed at BYU.
In 1996, Omniture, an online marketing and web analytics company, was created in Orem, UT by Josh James, another graduate of BYU. Adobe purchased the company in 2009 for nearly $2 billion. Qualtrics, a software company that began nearly two decades ago in Provo, UT, was created by a BYU professor and his two sons in their basement. Just recently, the company was acquired for $8 billion by SAP, a well-known market leader in enterprise application software—another testament to reputable and international companies that are recognizing and scooping up the various tech opportunities in Utah.

Utah: A Business-Friendly State

Alongside the area’s unmistakable tech presence, Utah is also a business-friendly state, making it an attractive place to start and grow a tech company. In this 2018 list from CNBC, Utah claimed the third spot overall in ranking states’ economic climate for conducting business. CNBC looked at over 60 metrics to rank states, including aspects such as the cost of doing business, economy, quality of life and cost of living. Utah won the #2 spot in economy, #19 in technology and innovation, and #12 in quality of life, just to name a few.
“Utah overall has a diverse economy,” according to Bryan Welch, Chief Communications Officer for Colliers’ Salt Lake City-Millrock office. “Not just one sector is strong here—while tech is big, companies like Boeing and Proctor & Gamble are also strong, further diversifying the market. We have a highly educated workforce, favorable policies, a high quality of living and inexpensive labor costs. All of these factors are a great hook for tech companies, offering them a lot of opportunity here in Utah.”

Will Utah’s Growth Hit a Wall?

While the business climate in Utah has proved to be favorable for growth, particularly in terms of tech, there are a few roadblocks to note that might slow this growth for the time being. The Salt Lake City area’s population is expected to double in the next 20 years, which means transportation and infrastructure improvements will need to be well-planned to accommodate for this explosion in growth. Additionally, like any market experiencing growth, housing prices are rising substantially, making the area less affordable for many. Geographically speaking, Salt Lake City is quite unique as well, with two massive lakes to the west and a mountain range to the east. These geographic barriers definitely limit the potential for suburban sprawl in the decades to come, and it’ll be critical to plan efficiently to maintain business growth on par with the slated growth in population.

Honorable Mentions: Other Unexpected Tech Hubs

Salt Lake City isn’t the only market giving the Silicon Valley a run for its money. Three other markets that have proven to be strong in this sector: Austin, Raleigh and Charlotte.
“Over the past 15 years, Austin has become one of the top technology markets in the country,” says Volney Campbell, Co-Chairman & Principal of Colliers’ Austin office. “Companies such as Apple, Oracle, Cisco, IBM, Indeed, Facebook and countless others have a significant workforce in the Austin area. In addition, Austin has also seen a strong entrepreneurial spirit grow to become a strong startup community, initially led by the creation of Dell Computers in the 1990’s. Since then, hundreds of companies including Silicon Labs, Retail Me Not, Home Away, Q2 Software and National Instruments have started in Austin and flourished here.” Similar to Salt Lake City, Austin also boasts a highly-educated workforce and business-friendly policies, with Texas taking the #1 spot on CNBC’s 2018 list of business-friendly states. “Austin is a proven commodity as a major factor in the technology industry and has all of the tools in place to remain a growing innovator of new technologies going forward,” concludes Campbell.
Raleigh, North Carolina is another notable tech-centric hub. With a low tax burden and three tier 1 research universities within 25 miles of each other, this market is teeming with tech talent. Tech companies that have a presence here include Citrix, Lenovo, SAS, EMC2, NetApp, Microsoft and Google. “The continued growth of Research Triangle Park as the leading, and also the largest, high technology research and science park in North America, pipeline of young talent from local universities, entrepreneurial workforce in the market and incentives from local government for businesses to come to the area, positions Raleigh for continued tech growth in the years to come,” says Kathy Gigac, SIOR, Director of Tenant Advisory Services in Colliers’ Raleigh office.
Another North Carolina city, Charlotte, boasts a robust tech presence. “Charlotte has one of the lowest corporate taxes in the Southeast at 3%,” says Haleigh Mundell-Moore, Marketing Manager for Colliers’ Charlotte office, on why tech is able to thrive here. “Other key factors in Charlotte’s technology success include business incubators, two of which cater specifically to tech startups, as well as the nearly 2,000 core technology related degrees/certificates that are awarded at Charlotte-area universities each year.” Tech companies with a presence in Charlotte include McKesson Technology Solutions, Optum, Inc., Microsoft, Passport, Inc., Synechron, Spectrum, Windstream and many more.
One thing is certain: as the technology sector continues to expand, so will its reliance on top-tier talent. Where do you think America’s next hotbed of tech talent is growing?
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Silicon Valley has long claimed the spotlight as the epicenter of tech in the United States, but there is tech life beyond Palo Alto. So, where else are we seeing...

Silicon Valley has long claimed the spotlight as the epicenter of tech in the United States, but there is tech life beyond Palo Alto. So, where else are we seeing a strong tech presence in America? The answer may surprise you. Salt Lake City, in particular, boasts a rich education and tech history with business-friendly policies, making it a hot spot for tech talent and growth.

Utah’s Tech History

With strong computer science programs, the universities in the Salt Lake City area have produced noteworthy tech talent over the years. Nolan Bushnell, the founder of Atari, claims the University of Utah as his alma mater. Novell, an early competitor of Microsoft in the 1980’s and 90’s was created by Ray Noorda and Drew Major, graduates of the University of Utah and Brigham Young University (BYU) respectively. Additionally, WordPerfect, an early competitor of Microsoft Word, was developed at BYU.
In 1996, Omniture, an online marketing and web analytics company, was created in Orem, UT by Josh James, another graduate of BYU. Adobe purchased the company in 2009 for nearly $2 billion. Qualtrics, a software company that began nearly two decades ago in Provo, UT, was created by a BYU professor and his two sons in their basement. Just recently, the company was acquired for $8 billion by SAP, a well-known market leader in enterprise application software—another testament to reputable and international companies that are recognizing and scooping up the various tech opportunities in Utah.

Utah: A Business-Friendly State

Alongside the area’s unmistakable tech presence, Utah is also a business-friendly state, making it an attractive place to start and grow a tech company. In this 2018 list from CNBC, Utah claimed the third spot overall in ranking states’ economic climate for conducting business. CNBC looked at over 60 metrics to rank states, including aspects such as the cost of doing business, economy, quality of life and cost of living. Utah won the #2 spot in economy, #19 in technology and innovation, and #12 in quality of life, just to name a few.
“Utah overall has a diverse economy,” according to Bryan Welch, Chief Communications Officer for Colliers’ Salt Lake City-Millrock office. “Not just one sector is strong here—while tech is big, companies like Boeing and Proctor & Gamble are also strong, further diversifying the market. We have a highly educated workforce, favorable policies, a high quality of living and inexpensive labor costs. All of these factors are a great hook for tech companies, offering them a lot of opportunity here in Utah.”

Will Utah’s Growth Hit a Wall?

While the business climate in Utah has proved to be favorable for growth, particularly in terms of tech, there are a few roadblocks to note that might slow this growth for the time being. The Salt Lake City area’s population is expected to double in the next 20 years, which means transportation and infrastructure improvements will need to be well-planned to accommodate for this explosion in growth. Additionally, like any market experiencing growth, housing prices are rising substantially, making the area less affordable for many. Geographically speaking, Salt Lake City is quite unique as well, with two massive lakes to the west and a mountain range to the east. These geographic barriers definitely limit the potential for suburban sprawl in the decades to come, and it’ll be critical to plan efficiently to maintain business growth on par with the slated growth in population.

Honorable Mentions: Other Unexpected Tech Hubs

Salt Lake City isn’t the only market giving the Silicon Valley a run for its money. Three other markets that have proven to be strong in this sector: Austin, Raleigh and Charlotte.
“Over the past 15 years, Austin has become one of the top technology markets in the country,” says Volney Campbell, Co-Chairman & Principal of Colliers’ Austin office. “Companies such as Apple, Oracle, Cisco, IBM, Indeed, Facebook and countless others have a significant workforce in the Austin area. In addition, Austin has also seen a strong entrepreneurial spirit grow to become a strong startup community, initially led by the creation of Dell Computers in the 1990’s. Since then, hundreds of companies including Silicon Labs, Retail Me Not, Home Away, Q2 Software and National Instruments have started in Austin and flourished here.” Similar to Salt Lake City, Austin also boasts a highly-educated workforce and business-friendly policies, with Texas taking the #1 spot on CNBC’s 2018 list of business-friendly states. “Austin is a proven commodity as a major factor in the technology industry and has all of the tools in place to remain a growing innovator of new technologies going forward,” concludes Campbell.
Raleigh, North Carolina is another notable tech-centric hub. With a low tax burden and three tier 1 research universities within 25 miles of each other, this market is teeming with tech talent. Tech companies that have a presence here include Citrix, Lenovo, SAS, EMC2, NetApp, Microsoft and Google. “The continued growth of Research Triangle Park as the leading, and also the largest, high technology research and science park in North America, pipeline of young talent from local universities, entrepreneurial workforce in the market and incentives from local government for businesses to come to the area, positions Raleigh for continued tech growth in the years to come,” says Kathy Gigac, SIOR, Director of Tenant Advisory Services in Colliers’ Raleigh office.
Another North Carolina city, Charlotte, boasts a robust tech presence. “Charlotte has one of the lowest corporate taxes in the Southeast at 3%,” says Haleigh Mundell-Moore, Marketing Manager for Colliers’ Charlotte office, on why tech is able to thrive here. “Other key factors in Charlotte’s technology success include business incubators, two of which cater specifically to tech startups, as well as the nearly 2,000 core technology related degrees/certificates that are awarded at Charlotte-area universities each year.” Tech companies with a presence in Charlotte include McKesson Technology Solutions, Optum, Inc., Microsoft, Passport, Inc., Synechron, Spectrum, Windstream and many more.
One thing is certain: as the technology sector continues to expand, so will its reliance on top-tier talent. Where do you think America’s next hotbed of tech talent is growing?
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/where-else-is-americas-tech-talent/feed/0The Impact of AI and Automation on CREhttps://knowledge-leader.colliers.com/editor/impact-ai-automation-cre/
https://knowledge-leader.colliers.com/editor/impact-ai-automation-cre/#commentsFri, 11 Jan 2019 16:30:17 +0000http://knowledge-leader.colliers.com/?p=7465

While artificial intelligence (AI) is technology whereby a machine perceives its environment and acts by “learning” from the experience, automation is the application of technology to automate a process with...

While artificial intelligence (AI) is technology whereby a machine perceives its environment and acts by “learning” from the experience, automation is the application of technology to automate a process with minimal human assistance. Though differing in their application, when combined, these technologies provide powerful tools for business, industry and specifically, commercial real estate (CRE).
Businesses are working to keep up with evolving standards and technological advancements of AI and automation. There has been a recent focus on how AI and automation affects how workers do their jobs—but there hasn’t been much discussion on how these advancing technologies will affect where workers do their jobs, especially in how it relates to CRE.
From the amount of space required, to the CRE asset types most affected and, to the way CRE professionals conduct business on behalf of their clients, the impacts of AI and automation are being felt in every aspect of the CRE industry.

The Effects of AI & Automation on CRE

Colliers’ Executive Vice President, Head of Innovation for Occupiers Services, Chris Zlocki knows how executives from the top down in every industry are keeping a close eye on these technologies and the correlation to their business, from impact to leverage.
Zlocki monitors how decision makers are gathering data and research in order to answer the questions that AI and automation are bringing to the forefront. What is the impact of AI and automation on the physical space required for a business to perform its operations? Will there be an increasing reduction in the amount of space needed going forward? Zlocki notes that in a recent McKinsey & Company article, Realigning global support-function footprints in a digital world, as many as 1.5 million service jobs could be affected as a result of AI & automation. This could translate into hundreds of millions of square feet of decommissioned or adaptive reuse space.
In CRE, evolving technology often has a direct impact on physical space requirements. Colliers’ U.S. Executive Vice President of Operations, Dan Spiegel, is an expert on how to help clients stay on the forefront of automated technology and how to adapt accordingly.
Spiegel finds that technology is already lowering staffing levels in some sectors and maximizing 24-hour operations for manufacturing and distribution in industrial buildings. To accommodate new technology requirements, the industry is building warehouses with expanded ceiling heights because, in part, tasks that were dangerous for individuals to perform are now automated, and the CRE industry must evolve to accommodate for new machinery requirements.
The questions that CRE industry leaders need answers to are at the intersection of automation and commercial real estate. Zlocki states that the most pertinent questions at this point are:

“How are emerging technologies impacting future footprint planning, the use of space and strategies that drive location and hiring decisions?”

In addition to reducing size and potential locations, buildings are using less lighting and energy with automation, primarily because machines don’t need the same environment humans do. “There’s an impact on what is being constructed, as well as a downstream impact originating from changes in how consumers buy, retailers and distributors optimize their networks and how new industrial construction meets these needs. Industrial tenants demand the best distribution locations with buildings that can leverage the best warehousing technology. The industrial real estate market has changed due to the automation of manufacturing, distribution and consumption,” noted Spiegel.
Automation is being used in CRE to evaluate property uses for efficiency in every way possible. Spiegel continues, “There is technology that counts the number of people that enter a building, then automatically adjusts the temperature to be more efficient for the body heat being created. There’s a whole area of building operations that aims to increase efficiency.”
Spiegel is particularly interested in how AI-driven data can help developers acquire and build the right buildings for the land. “In today’s data-driven world, you can put a lot more science behind decisions to know real value. The development of CRE assets can be pinpointed and more accurate to achieve a property’s highest potential value faster.”
In planning CRE decisions, there is a need for knowledge about how a space is being used. Technology, like cell phone pings, can be used to create metrics and determine if a space is being utilized to its full potential. For example, this technology can be used to determine where people are congregating in an office or how full the office is on any given Friday.
And applied to the retail environment, the same technology indicates to property owners and retailers where shoppers spend most of their time in a store. Much of the movement toward AI and automation is about creating measurement tools and data that can be analyzed to create spaces that are most efficient, not just for owners and investors, but also for users and occupiers.

Using AI and Automation to Create Efficiencies

Aside from the space considerations that the convergence of AI and automation will necessitate, there is also a shift occurring on the business side of CRE. Spiegel explains that much of the technology being used now in CRE streamlines the contractual back-and-forth of buying and selling of commercial real estate. Abstraction technology used to scan contracts makes negotiations more manageable and time efficient for all parties.
Zlocki points to this aspect of AI and automation developments as the most “tangible” impact for CRE, and the closest to the surface in its immediate viability. “The transaction process—the automation around doing a deal—will change the broker process. You’ll be able to get more done and done more quickly. A great example of this is in looking at market comparables.”
Spiegel explains, “The overall shift toward a more number-driven or quantifiable world makes metrics even more essential when evaluating properties. Abstraction technology helps to make more accurate and efficient evaluations and transactions. There is potential to make the process smoother. Using AI technology, there would be tremendous value to the industry—occupiers and investors alike. All advancements in technology have an impact on how we interact with space, clients and how commercial real estate developments evolve.”
Zlocki points out that Colliers is utilizing AI and automation in the Colliers 360 platform to provide clients with analysis of their current CRE market conditions, investments, future opportunities and new projects. Colliers has been able to use AI to analyze information from multiple data sources, inclusive of the valuable data clients already have, and then provide actionable insight to clients that goes way beyond the transaction.

The Long-Term Impact of AI & Automation

Some of the fear surrounding AI and automation is that human labor will be outpaced and outperformed by technology—making many positions in key industries obsolete. However, research published in McKinsey Quarterly demonstrations that AI and automation are more likely to eliminate specific activities, not entire occupations. Even for positions that are highly automatable, there is more to consider than just how easy it is to program a machine to perform a specific task.
Zlocki sees more opportunities than downsides for CRE where automation is concerned, stating that, “Companies that move to embrace these changes in technology will find that both they, and their clients, benefit from it. AI can enhance the services provided by CRE companies when they’re paired with knowledgeable human resources.”
The effects of AI and automation won’t negate the need for experienced and knowledgeable CRE professionals, only enhance the experience for their current and future clients. Zlocki equates the impact of AI and automation on CRE to that of the invention of electricity, concluding that, “The world was never the same after the adoption of electricity, and likewise, the world—and the commercial real estate industry—will never be the same after fully embracing AI and automation advancements.”
About the ExpertsColliers’ Executive Vice President, Head of Innovation for Occupier Services Chris Zlocki oversees consulting and technology services including Colliers360, providing clients flexible dashboard analytics, insights and portfolio solutions.Colliers’ Executive Vice President of U.S. Operations Dan Spiegel is focused on connecting lines of business and expanding Colliers’ U.S. footprint. Spiegel monitors evolving technologies and their integration and early adoption, creating value and efficiency for the brokerage business lines and clients they serve.]]>

While artificial intelligence (AI) is technology whereby a machine perceives its environment and acts by “learning” from the experience, automation is the application of technology to automate a process with...

While artificial intelligence (AI) is technology whereby a machine perceives its environment and acts by “learning” from the experience, automation is the application of technology to automate a process with minimal human assistance. Though differing in their application, when combined, these technologies provide powerful tools for business, industry and specifically, commercial real estate (CRE).
Businesses are working to keep up with evolving standards and technological advancements of AI and automation. There has been a recent focus on how AI and automation affects how workers do their jobs—but there hasn’t been much discussion on how these advancing technologies will affect where workers do their jobs, especially in how it relates to CRE.
From the amount of space required, to the CRE asset types most affected and, to the way CRE professionals conduct business on behalf of their clients, the impacts of AI and automation are being felt in every aspect of the CRE industry.

The Effects of AI & Automation on CRE

Colliers’ Executive Vice President, Head of Innovation for Occupiers Services, Chris Zlocki knows how executives from the top down in every industry are keeping a close eye on these technologies and the correlation to their business, from impact to leverage.
Zlocki monitors how decision makers are gathering data and research in order to answer the questions that AI and automation are bringing to the forefront. What is the impact of AI and automation on the physical space required for a business to perform its operations? Will there be an increasing reduction in the amount of space needed going forward? Zlocki notes that in a recent McKinsey & Company article, Realigning global support-function footprints in a digital world, as many as 1.5 million service jobs could be affected as a result of AI & automation. This could translate into hundreds of millions of square feet of decommissioned or adaptive reuse space.
In CRE, evolving technology often has a direct impact on physical space requirements. Colliers’ U.S. Executive Vice President of Operations, Dan Spiegel, is an expert on how to help clients stay on the forefront of automated technology and how to adapt accordingly.
Spiegel finds that technology is already lowering staffing levels in some sectors and maximizing 24-hour operations for manufacturing and distribution in industrial buildings. To accommodate new technology requirements, the industry is building warehouses with expanded ceiling heights because, in part, tasks that were dangerous for individuals to perform are now automated, and the CRE industry must evolve to accommodate for new machinery requirements.
The questions that CRE industry leaders need answers to are at the intersection of automation and commercial real estate. Zlocki states that the most pertinent questions at this point are:

“How are emerging technologies impacting future footprint planning, the use of space and strategies that drive location and hiring decisions?”

In addition to reducing size and potential locations, buildings are using less lighting and energy with automation, primarily because machines don’t need the same environment humans do. “There’s an impact on what is being constructed, as well as a downstream impact originating from changes in how consumers buy, retailers and distributors optimize their networks and how new industrial construction meets these needs. Industrial tenants demand the best distribution locations with buildings that can leverage the best warehousing technology. The industrial real estate market has changed due to the automation of manufacturing, distribution and consumption,” noted Spiegel.
Automation is being used in CRE to evaluate property uses for efficiency in every way possible. Spiegel continues, “There is technology that counts the number of people that enter a building, then automatically adjusts the temperature to be more efficient for the body heat being created. There’s a whole area of building operations that aims to increase efficiency.”
Spiegel is particularly interested in how AI-driven data can help developers acquire and build the right buildings for the land. “In today’s data-driven world, you can put a lot more science behind decisions to know real value. The development of CRE assets can be pinpointed and more accurate to achieve a property’s highest potential value faster.”
In planning CRE decisions, there is a need for knowledge about how a space is being used. Technology, like cell phone pings, can be used to create metrics and determine if a space is being utilized to its full potential. For example, this technology can be used to determine where people are congregating in an office or how full the office is on any given Friday.
And applied to the retail environment, the same technology indicates to property owners and retailers where shoppers spend most of their time in a store. Much of the movement toward AI and automation is about creating measurement tools and data that can be analyzed to create spaces that are most efficient, not just for owners and investors, but also for users and occupiers.

Using AI and Automation to Create Efficiencies

Aside from the space considerations that the convergence of AI and automation will necessitate, there is also a shift occurring on the business side of CRE. Spiegel explains that much of the technology being used now in CRE streamlines the contractual back-and-forth of buying and selling of commercial real estate. Abstraction technology used to scan contracts makes negotiations more manageable and time efficient for all parties.
Zlocki points to this aspect of AI and automation developments as the most “tangible” impact for CRE, and the closest to the surface in its immediate viability. “The transaction process—the automation around doing a deal—will change the broker process. You’ll be able to get more done and done more quickly. A great example of this is in looking at market comparables.”
Spiegel explains, “The overall shift toward a more number-driven or quantifiable world makes metrics even more essential when evaluating properties. Abstraction technology helps to make more accurate and efficient evaluations and transactions. There is potential to make the process smoother. Using AI technology, there would be tremendous value to the industry—occupiers and investors alike. All advancements in technology have an impact on how we interact with space, clients and how commercial real estate developments evolve.”
Zlocki points out that Colliers is utilizing AI and automation in the Colliers 360 platform to provide clients with analysis of their current CRE market conditions, investments, future opportunities and new projects. Colliers has been able to use AI to analyze information from multiple data sources, inclusive of the valuable data clients already have, and then provide actionable insight to clients that goes way beyond the transaction.

The Long-Term Impact of AI & Automation

Some of the fear surrounding AI and automation is that human labor will be outpaced and outperformed by technology—making many positions in key industries obsolete. However, research published in McKinsey Quarterly demonstrations that AI and automation are more likely to eliminate specific activities, not entire occupations. Even for positions that are highly automatable, there is more to consider than just how easy it is to program a machine to perform a specific task.
Zlocki sees more opportunities than downsides for CRE where automation is concerned, stating that, “Companies that move to embrace these changes in technology will find that both they, and their clients, benefit from it. AI can enhance the services provided by CRE companies when they’re paired with knowledgeable human resources.”
The effects of AI and automation won’t negate the need for experienced and knowledgeable CRE professionals, only enhance the experience for their current and future clients. Zlocki equates the impact of AI and automation on CRE to that of the invention of electricity, concluding that, “The world was never the same after the adoption of electricity, and likewise, the world—and the commercial real estate industry—will never be the same after fully embracing AI and automation advancements.”
About the ExpertsColliers’ Executive Vice President, Head of Innovation for Occupier Services Chris Zlocki oversees consulting and technology services including Colliers360, providing clients flexible dashboard analytics, insights and portfolio solutions.Colliers’ Executive Vice President of U.S. Operations Dan Spiegel is focused on connecting lines of business and expanding Colliers’ U.S. footprint. Spiegel monitors evolving technologies and their integration and early adoption, creating value and efficiency for the brokerage business lines and clients they serve.]]>https://knowledge-leader.colliers.com/editor/impact-ai-automation-cre/feed/1How Opportunity Zones Could be the Answer to Urban Industrial Redevelopmenthttps://knowledge-leader.colliers.com/james-breeze/opportunity-zones-answer-urban-industrial-redevelopment/
https://knowledge-leader.colliers.com/james-breeze/opportunity-zones-answer-urban-industrial-redevelopment/#respondThu, 10 Jan 2019 16:30:14 +0000http://knowledge-leader.colliers.com/?p=7456

This thought leadership piece is the second in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors. The 2017 Tax Cuts and...

This thought leadership piece is the second in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors.
The 2017 Tax Cuts and Jobs Act created a new national community investment program that seeks to connect private capital with under-invested communities. Some of the most under-invested areas are urban industrial redevelopment sites, and investors are starting to take notice.
Many Opportunity Zones are distressed urban areas outside of core population centers. These areas are ripe for industrial redevelopment because much of the existing product is obsolete for most modern industrial users including final-mile distribution centers.

Opportunity for the Final-Mile

The final-mile is the last link in the global supply chain that connects consumers with the rest of the world. This final-mile carries an outsized cost and much emphasis has been placed on improving this aspect of order delivery. While demand for final-mile centers is surging to new highs, a lack of suitable inventory remains the greatest obstacle.
Final-mile industrial users compete for urban industrial buildings with breweries, fitness centers and other quasi-retail/office uses that have traditionally filled this void of under-utilized properties. Unlike traditional industrial counterparts, reusing older industrial buildings for non-industrial uses and final-mile face many significant hurdles. Lack of parking, incompatible zoning code, crime and environmental issues are some of the problems in redeveloping these under-utilized spaces.
As mentioned in our first installment of this Opportunity Zones blog series, the new Opportunity Zone legislation may change the calculus in deciding the viability of adaptive reuse projects. The Opportunity Zones provide a mechanism by which investors in industrial real estate can place capital in the most in demand commercial asset class while still maintaining core-plus/value-add return upside in higher-cost redevelopments.

Markets Ripe for Opportunity Zone Investment

Although there are more than 8,700 designated census tracts in the Opportunity Zone program, some offer more potential for immediate positive impact for both investors and residents than others. The top markets for Opportunity Zone industrial investment will be located near large growing populations, major transportation hubs and have access to a robust labor pool. While many markets across the U.S. can check off a majority of these requirements, the five markets below offer the most potential for industrial investment:

South Los Angeles: The South Los Angeles area has a large amount of older industrial space, and these areas also have access to several freeways. Now that many areas of South Los Angeles fall into Opportunity Zones, entrepreneurs and builders have even greater incentives to develop more housing and local amenities in these emerging neighborhoods.

Nashville: Many of the most promising Nashville Opportunity Zones surround the Cumberland River near Downtown Nashville. Opportunity Zones on both sides of the Cumberland River are also promising. Nashville is experiencing some of the largest millennial population growth in the country, and these areas are ripe for industrial related redevelopment to service them.

Atlanta: In 2017, Atlanta was one of the fastest growing cities in the U.S., adding nearly 100,000 residents. Its growth is expected to continue with the development of both private and public real estate in the coming years. Atlanta is also the regional distribution hub of the Southeast, servicing the fastest growing regions in the country. All of this means the need for more urban industrial and a significant amount of potential in its Opportunity Zone locations.

Houston: There are many Texas Opportunity Zones that offer promise for increased investment, but Houston offers some of the largest and most immediate opportunities for impact. Large contiguous sections of central parts of the city extending north and south of the 610 freeway now fall into Opportunity Zones. Redevelopment in the city has been hampered by the effects of Hurricane Harvey, but the addition of Opportunity Zones could be a major catalyst.

Oakland: Many parts of California offer enticing Opportunity Zone options, but the Oakland region provides a significant opportunity for industrial redevelopment. There is significant demand to service one of the most affluent millennial populations in the world and Opportunity Zones in many parts of the city, especially the Coliseum Industrial zone, provide a significant opportunity to do so.

Opening Urban Markets for Investment

The concept of Opportunity Zones remains new to many investors still trying to wrap their arms around their exact implications. What is clear is that many investors will continue to look at industrial real estate as a safe haven for placing capital. With Opportunity Zone rules making it easier to increase yields, it will be a new mechanism that opens up urban markets and alternative industrial product types to more investment.
Next topic in the series: A Macro View of Opportunity Zones]]>

This thought leadership piece is the second in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors. The 2017 Tax Cuts and...

This thought leadership piece is the second in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors.
The 2017 Tax Cuts and Jobs Act created a new national community investment program that seeks to connect private capital with under-invested communities. Some of the most under-invested areas are urban industrial redevelopment sites, and investors are starting to take notice.
Many Opportunity Zones are distressed urban areas outside of core population centers. These areas are ripe for industrial redevelopment because much of the existing product is obsolete for most modern industrial users including final-mile distribution centers.

Opportunity for the Final-Mile

The final-mile is the last link in the global supply chain that connects consumers with the rest of the world. This final-mile carries an outsized cost and much emphasis has been placed on improving this aspect of order delivery. While demand for final-mile centers is surging to new highs, a lack of suitable inventory remains the greatest obstacle.
Final-mile industrial users compete for urban industrial buildings with breweries, fitness centers and other quasi-retail/office uses that have traditionally filled this void of under-utilized properties. Unlike traditional industrial counterparts, reusing older industrial buildings for non-industrial uses and final-mile face many significant hurdles. Lack of parking, incompatible zoning code, crime and environmental issues are some of the problems in redeveloping these under-utilized spaces.
As mentioned in our first installment of this Opportunity Zones blog series, the new Opportunity Zone legislation may change the calculus in deciding the viability of adaptive reuse projects. The Opportunity Zones provide a mechanism by which investors in industrial real estate can place capital in the most in demand commercial asset class while still maintaining core-plus/value-add return upside in higher-cost redevelopments.

Markets Ripe for Opportunity Zone Investment

Although there are more than 8,700 designated census tracts in the Opportunity Zone program, some offer more potential for immediate positive impact for both investors and residents than others. The top markets for Opportunity Zone industrial investment will be located near large growing populations, major transportation hubs and have access to a robust labor pool. While many markets across the U.S. can check off a majority of these requirements, the five markets below offer the most potential for industrial investment:

South Los Angeles: The South Los Angeles area has a large amount of older industrial space, and these areas also have access to several freeways. Now that many areas of South Los Angeles fall into Opportunity Zones, entrepreneurs and builders have even greater incentives to develop more housing and local amenities in these emerging neighborhoods.

Nashville: Many of the most promising Nashville Opportunity Zones surround the Cumberland River near Downtown Nashville. Opportunity Zones on both sides of the Cumberland River are also promising. Nashville is experiencing some of the largest millennial population growth in the country, and these areas are ripe for industrial related redevelopment to service them.

Atlanta: In 2017, Atlanta was one of the fastest growing cities in the U.S., adding nearly 100,000 residents. Its growth is expected to continue with the development of both private and public real estate in the coming years. Atlanta is also the regional distribution hub of the Southeast, servicing the fastest growing regions in the country. All of this means the need for more urban industrial and a significant amount of potential in its Opportunity Zone locations.

Houston: There are many Texas Opportunity Zones that offer promise for increased investment, but Houston offers some of the largest and most immediate opportunities for impact. Large contiguous sections of central parts of the city extending north and south of the 610 freeway now fall into Opportunity Zones. Redevelopment in the city has been hampered by the effects of Hurricane Harvey, but the addition of Opportunity Zones could be a major catalyst.

Oakland: Many parts of California offer enticing Opportunity Zone options, but the Oakland region provides a significant opportunity for industrial redevelopment. There is significant demand to service one of the most affluent millennial populations in the world and Opportunity Zones in many parts of the city, especially the Coliseum Industrial zone, provide a significant opportunity to do so.

Opening Urban Markets for Investment

The concept of Opportunity Zones remains new to many investors still trying to wrap their arms around their exact implications. What is clear is that many investors will continue to look at industrial real estate as a safe haven for placing capital. With Opportunity Zone rules making it easier to increase yields, it will be a new mechanism that opens up urban markets and alternative industrial product types to more investment.
Next topic in the series: A Macro View of Opportunity Zones]]>https://knowledge-leader.colliers.com/james-breeze/opportunity-zones-answer-urban-industrial-redevelopment/feed/0Data Centers: The Utility of the Futurehttps://knowledge-leader.colliers.com/editor/data-centers-utility-future/
https://knowledge-leader.colliers.com/editor/data-centers-utility-future/#respondMon, 07 Jan 2019 16:05:42 +0000http://knowledge-leader.colliers.com/?p=7452

Data centers, the immense warehouses that hold, process and distribute seemingly endless amounts of data, are also an unassuming commercial real estate powerhouse. Hyperscale data centers built by tech giants...

Data centers, the immense warehouses that hold, process and distribute seemingly endless amounts of data, are also an unassuming commercial real estate powerhouse. Hyperscale data centers built by tech giants such as Apple or Google are projected to grow 53% by the year 2021, in comparison to the number of existing data centers in Q4 2016.
A solid history of economic performance—even during severe downturns—combined with a continued growth of global digitalization trends makes this property type particularly attractive to real estate investors. Everett Thompson, Senior Vice President of Colliers’ Data Centers Consulting group, describes data centers as “the utility of the future.”
“If you could invest in a power company when the industry was first starting out, wouldn’t you want to do that?” asks Thompson. “Hundreds of billions of dollars are being spent here, and the yields are higher than most other investments in real estate. Typically, investors are building to a 12% cap rate or higher and then levering up to a 5-6% cap upon stabilized occupancy. These figures far exceed those of traditional real estate, and data centers are also a hedge against recessions, since most are considered ’mission critical‘ to the operations of the tenant.”
Here is a review of some of the ways that data centers have proved to be strong investments.

Recession-Proof?

Any industry that utilizes an internet network can’t do so without a data center, which stores, processes and distributes all that data in the background of any given company’s operations. This said, data centers don’t necessarily fluctuate with normal market supply and demand factors, since what they supply is unquestionably integral to the operations of so many other industries.
Aside from being crucial on an industry level, data centers are also imperative to the daily lives of average Americans. If you pay your bills online, stream music through Spotify or Pandora and connect with friends and family on various social media networks, all of these activities couldn’t operate without the existence of data centers, a sector which remains strong regardless of the ebbs and flows of the economy.

Global Digitalization Trends

Companies are increasingly integrating the internet into how they conduct all aspects of business. This isn’t surprising, but it’s important to note that this trend continues to grow as digitalization becomes more commonly understood and developed. As businesses large and small continue to shift toward more tech-centric, internet-driven models, their IT infrastructures will also need to keep pace with this change, making data centers a hidden, but inevitable, part of this growth. According to Cisco, overall data center workloads will more than double from 2016 to 2021, and will triple in regard to cloud computing over the same time period.
Internet access was relatively expensive in the early years of internet adoption. But as widespread corporate and personal usage increased, that cost dropped precipitously, enabling entirely new business models. With Netflix, for example, network costs dropped to the point where in 2007, the company started streaming high definition content online, essentially replacing their mail delivery service.
Now, 11 years later, online streaming has exploded, with internet entertainment threatening established media. “What we’re witnessing now is a transformation that is every bit as game-changing as the industrial revolution,” says Thompson. “Up until recently, the internet was quite limited because the cost was so high. The costs are coming down—and what we’ll see going forward will be a boom of even more content moving online. That’s what data centers really do, they’re essentially big content-generating plants, similar to the original power plants of the first industrial revolution.”

Autonomous Vehicles Could Change the Future of Data Centers

What role will data centers play as autonomous vehicles make an entrance into the market in the not-so-distant future? In order for a car to drive itself, it will need advanced technology, along with some sort of a network connection. “At some point, that vehicle has to connect to the internet,” notes Thompson. Although it’s not entirely clear as to how many of those connections will reside in a self-driving car itself vs. remotely, it’s certain that the emergence of self-driving cars will change aspects of how data centers operate and communicate, further strengthening its permanence in terms of connectivity to other industries.

A Strong Investment Choice

As technology further develops, the importance of the internet is clear in terms of how individuals and industries operate. Although not obvious at first glance, data centers are the foundation for the sustainability of all company’s data and are imperative for the vitality of a variety of industries. Their ability to withstand dips in the economy and the necessary role they play in the growth of the internet have well-positioned data centers as a strong investment option now and for years to come. “There are billions of dollars coming into the industry, which has created a wonderful environment for investors and end users alike,” concludes Thompson.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Data centers, the immense warehouses that hold, process and distribute seemingly endless amounts of data, are also an unassuming commercial real estate powerhouse. Hyperscale data centers built by tech giants...

Data centers, the immense warehouses that hold, process and distribute seemingly endless amounts of data, are also an unassuming commercial real estate powerhouse. Hyperscale data centers built by tech giants such as Apple or Google are projected to grow 53% by the year 2021, in comparison to the number of existing data centers in Q4 2016.
A solid history of economic performance—even during severe downturns—combined with a continued growth of global digitalization trends makes this property type particularly attractive to real estate investors. Everett Thompson, Senior Vice President of Colliers’ Data Centers Consulting group, describes data centers as “the utility of the future.”
“If you could invest in a power company when the industry was first starting out, wouldn’t you want to do that?” asks Thompson. “Hundreds of billions of dollars are being spent here, and the yields are higher than most other investments in real estate. Typically, investors are building to a 12% cap rate or higher and then levering up to a 5-6% cap upon stabilized occupancy. These figures far exceed those of traditional real estate, and data centers are also a hedge against recessions, since most are considered ’mission critical‘ to the operations of the tenant.”
Here is a review of some of the ways that data centers have proved to be strong investments.

Recession-Proof?

Any industry that utilizes an internet network can’t do so without a data center, which stores, processes and distributes all that data in the background of any given company’s operations. This said, data centers don’t necessarily fluctuate with normal market supply and demand factors, since what they supply is unquestionably integral to the operations of so many other industries.
Aside from being crucial on an industry level, data centers are also imperative to the daily lives of average Americans. If you pay your bills online, stream music through Spotify or Pandora and connect with friends and family on various social media networks, all of these activities couldn’t operate without the existence of data centers, a sector which remains strong regardless of the ebbs and flows of the economy.

Global Digitalization Trends

Companies are increasingly integrating the internet into how they conduct all aspects of business. This isn’t surprising, but it’s important to note that this trend continues to grow as digitalization becomes more commonly understood and developed. As businesses large and small continue to shift toward more tech-centric, internet-driven models, their IT infrastructures will also need to keep pace with this change, making data centers a hidden, but inevitable, part of this growth. According to Cisco, overall data center workloads will more than double from 2016 to 2021, and will triple in regard to cloud computing over the same time period.
Internet access was relatively expensive in the early years of internet adoption. But as widespread corporate and personal usage increased, that cost dropped precipitously, enabling entirely new business models. With Netflix, for example, network costs dropped to the point where in 2007, the company started streaming high definition content online, essentially replacing their mail delivery service.
Now, 11 years later, online streaming has exploded, with internet entertainment threatening established media. “What we’re witnessing now is a transformation that is every bit as game-changing as the industrial revolution,” says Thompson. “Up until recently, the internet was quite limited because the cost was so high. The costs are coming down—and what we’ll see going forward will be a boom of even more content moving online. That’s what data centers really do, they’re essentially big content-generating plants, similar to the original power plants of the first industrial revolution.”

Autonomous Vehicles Could Change the Future of Data Centers

What role will data centers play as autonomous vehicles make an entrance into the market in the not-so-distant future? In order for a car to drive itself, it will need advanced technology, along with some sort of a network connection. “At some point, that vehicle has to connect to the internet,” notes Thompson. Although it’s not entirely clear as to how many of those connections will reside in a self-driving car itself vs. remotely, it’s certain that the emergence of self-driving cars will change aspects of how data centers operate and communicate, further strengthening its permanence in terms of connectivity to other industries.

A Strong Investment Choice

As technology further develops, the importance of the internet is clear in terms of how individuals and industries operate. Although not obvious at first glance, data centers are the foundation for the sustainability of all company’s data and are imperative for the vitality of a variety of industries. Their ability to withstand dips in the economy and the necessary role they play in the growth of the internet have well-positioned data centers as a strong investment option now and for years to come. “There are billions of dollars coming into the industry, which has created a wonderful environment for investors and end users alike,” concludes Thompson.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/data-centers-utility-future/feed/0How Industrial Occupiers Can Win the Battle for Laborhttps://knowledge-leader.colliers.com/editor/industrial-occupiers-can-win-battle-labor/
https://knowledge-leader.colliers.com/editor/industrial-occupiers-can-win-battle-labor/#respondFri, 04 Jan 2019 19:00:25 +0000http://knowledge-leader.colliers.com/?p=7444

Most commercial real estate and supply chain experts recognize the challenges the distribution industry encounters when it comes to labor availability. The U.S. unemployment rate has dropped to a nearly...

Most commercial real estate and supply chain experts recognize the challenges the distribution industry encounters when it comes to labor availability. The U.S. unemployment rate has dropped to a nearly 50-year low. In September of 2018, three industries directly related to industrial real estate achieved all-time highs for total employed in the U.S. in truck transportation (1.48 million), couriers and messengers (756,600) and warehousing and storage (1.05 million). These record-breaking workforce numbers are the direct result of the increase in e-commerce distribution, which requires up to four times the amount of labor over traditional warehousing, in turn fueling an unprecedented demand for truck and courier drivers.
The insatiable need for labor due to the rise of e-commerce, combined with an economy at nearly full employment (3.7% in November 2018), means the amount of labor needed in distribution already is difficult to find in some markets. A breaking point with this labor shortage is looming on the horizon—so what can industrial occupiers do to reverse this trend?

Increase Wages

While hourly wages have not increased significantly overall, rising in the U.S. only 3.1% year-over-year according to the Bureau of Labor Statistics, hourly rates for warehouse labor have increased 6.7% since 2017 per a recent Prologistix pay study. Some of this stems from the need to keep up with inflation, but the primary drivers behind these wage increases is to combat the shortage of labor. Staffing agencies are also driving wage increases, by telling employers that attracting workers requires them to increase hourly rates. Increasing wages can entice labor from the retail or food services industries, a target labor pools for distribution occupiers, to give warehouse work a shot.
Amazon, by far the largest distribution center occupier in the U.S., is at the forefront of this trend. In November of this year, they increased their minimum wage to $15 an hour for its U.S. part-time employees and those hired through temporary agencies. The company also acknowledged it would lobby Washington to raise the federal minimum wage, which has been set at $7.25 for nearly a decade. This move would have a ripple effect throughout the supply chain industry, assuming other retailers and third-party logistics (3PL’s) felt compelled to offer similar wages or risk losing employees to Amazon.

Offer Perks

Another way to attract labor is to offer more amenities and benefits. Distribution centers throughout the country are starting to look more like a creative office space with break rooms including couches, ping pong tables and basketball courts. Other perks include daycare for children. For example, Starbucks, an organization known for offering superior benefits to their employees, has a new association with Care.com to offer Care@Work, an online service connecting families and caregivers at a heavily discounted rate. While this is an example of a retailer offering perks, as competition for labor intensifies, similar perks will be necessary to attract distribution labor. Companies are recognizing that in order to attract and retain talent, both in the warehouse and in corporate America, they must entice the millennial and Gen Y crowd. These groups as a whole are more likely to work for a brand that they admire, even in distribution capacities. According to a survey by PricewaterhouseCoopers on millennials in the workplace, development and work/life balance ranked higher than financial rewards.
REI, a company known for sustainability and supporting the community and environment recently opened a distribution center in Goodyear, AZ, that is one of the most sustainable distribution centers in the world. The building produces all of its own energy—not yet a common practice—and has one of the lowest water footprints in the world. And, in terms of employee perks, this REI location offers a fitness center, physical therapist, café, botanical garden, bike storage and air conditioning to offset the Arizona heat. “…we approached it as an opportunity to improve energy efficiency, limit our impact on natural resources and make a more comfortable workplace for our employees,” says REI on the major focus points when building this new distribution center.

Increase Flexibility

When financial incentives and environmental perks aren’t enough, providing a flexible workplace can do a lot to attract labor and improve retention. A company that offers flexible shifts based on employee rather than company needs can be very attractive for college students, part-time employees or people seeking a secondary stream of income. This could be why Uber and Lyft have become so popular in the U.S. population, with drivers setting their own hours around their schedule, and enabling them to work on their terms.
This flexibility greatly expands the labor pool to include working mothers, retirees and those with second jobs.

Introduce Automation

No matter how creative companies become to attract and retain talent, there is no doubt that automation can reduce pressure placed on labor. By introducing automation into distribution centers, companies increase human efficiency by reducing the time it takes to complete any task as well as decrease the need for additional labor to accommodate demand, particularly seasonal demand. Reliance on automation will continue to increase as labor remains a scarce commodity and technology continues to advance.

The New Era of Distribution Culture

Occupiers are reinventing their distribution centers into more attractive and engaging environments that provide employees with elevated benefits, higher pay, and a quality workplace.
While there are definite shifts occurring to attract and retain labor, robotics and artificial intelligence will be key environmental ingredients to move online orders more quickly in this tight labor market. As this trend continues during the holiday season and beyond, Colliers will further explore a handful of U.S. markets’ affordability and availability of labor. Stay tuned for our next article in this series on current trends on labor in warehouses.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Most commercial real estate and supply chain experts recognize the challenges the distribution industry encounters when it comes to labor availability. The U.S. unemployment rate has dropped to a nearly...

Most commercial real estate and supply chain experts recognize the challenges the distribution industry encounters when it comes to labor availability. The U.S. unemployment rate has dropped to a nearly 50-year low. In September of 2018, three industries directly related to industrial real estate achieved all-time highs for total employed in the U.S. in truck transportation (1.48 million), couriers and messengers (756,600) and warehousing and storage (1.05 million). These record-breaking workforce numbers are the direct result of the increase in e-commerce distribution, which requires up to four times the amount of labor over traditional warehousing, in turn fueling an unprecedented demand for truck and courier drivers.
The insatiable need for labor due to the rise of e-commerce, combined with an economy at nearly full employment (3.7% in November 2018), means the amount of labor needed in distribution already is difficult to find in some markets. A breaking point with this labor shortage is looming on the horizon—so what can industrial occupiers do to reverse this trend?

Increase Wages

While hourly wages have not increased significantly overall, rising in the U.S. only 3.1% year-over-year according to the Bureau of Labor Statistics, hourly rates for warehouse labor have increased 6.7% since 2017 per a recent Prologistix pay study. Some of this stems from the need to keep up with inflation, but the primary drivers behind these wage increases is to combat the shortage of labor. Staffing agencies are also driving wage increases, by telling employers that attracting workers requires them to increase hourly rates. Increasing wages can entice labor from the retail or food services industries, a target labor pools for distribution occupiers, to give warehouse work a shot.
Amazon, by far the largest distribution center occupier in the U.S., is at the forefront of this trend. In November of this year, they increased their minimum wage to $15 an hour for its U.S. part-time employees and those hired through temporary agencies. The company also acknowledged it would lobby Washington to raise the federal minimum wage, which has been set at $7.25 for nearly a decade. This move would have a ripple effect throughout the supply chain industry, assuming other retailers and third-party logistics (3PL’s) felt compelled to offer similar wages or risk losing employees to Amazon.

Offer Perks

Another way to attract labor is to offer more amenities and benefits. Distribution centers throughout the country are starting to look more like a creative office space with break rooms including couches, ping pong tables and basketball courts. Other perks include daycare for children. For example, Starbucks, an organization known for offering superior benefits to their employees, has a new association with Care.com to offer Care@Work, an online service connecting families and caregivers at a heavily discounted rate. While this is an example of a retailer offering perks, as competition for labor intensifies, similar perks will be necessary to attract distribution labor. Companies are recognizing that in order to attract and retain talent, both in the warehouse and in corporate America, they must entice the millennial and Gen Y crowd. These groups as a whole are more likely to work for a brand that they admire, even in distribution capacities. According to a survey by PricewaterhouseCoopers on millennials in the workplace, development and work/life balance ranked higher than financial rewards.
REI, a company known for sustainability and supporting the community and environment recently opened a distribution center in Goodyear, AZ, that is one of the most sustainable distribution centers in the world. The building produces all of its own energy—not yet a common practice—and has one of the lowest water footprints in the world. And, in terms of employee perks, this REI location offers a fitness center, physical therapist, café, botanical garden, bike storage and air conditioning to offset the Arizona heat. “…we approached it as an opportunity to improve energy efficiency, limit our impact on natural resources and make a more comfortable workplace for our employees,” says REI on the major focus points when building this new distribution center.

Increase Flexibility

When financial incentives and environmental perks aren’t enough, providing a flexible workplace can do a lot to attract labor and improve retention. A company that offers flexible shifts based on employee rather than company needs can be very attractive for college students, part-time employees or people seeking a secondary stream of income. This could be why Uber and Lyft have become so popular in the U.S. population, with drivers setting their own hours around their schedule, and enabling them to work on their terms.
This flexibility greatly expands the labor pool to include working mothers, retirees and those with second jobs.

Introduce Automation

No matter how creative companies become to attract and retain talent, there is no doubt that automation can reduce pressure placed on labor. By introducing automation into distribution centers, companies increase human efficiency by reducing the time it takes to complete any task as well as decrease the need for additional labor to accommodate demand, particularly seasonal demand. Reliance on automation will continue to increase as labor remains a scarce commodity and technology continues to advance.

The New Era of Distribution Culture

Occupiers are reinventing their distribution centers into more attractive and engaging environments that provide employees with elevated benefits, higher pay, and a quality workplace.
While there are definite shifts occurring to attract and retain labor, robotics and artificial intelligence will be key environmental ingredients to move online orders more quickly in this tight labor market. As this trend continues during the holiday season and beyond, Colliers will further explore a handful of U.S. markets’ affordability and availability of labor. Stay tuned for our next article in this series on current trends on labor in warehouses.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/industrial-occupiers-can-win-battle-labor/feed/0Retail Horoscope: CRE Predictions to Influence 2019https://knowledge-leader.colliers.com/anjee-solanki/retail-horoscope-2019/
https://knowledge-leader.colliers.com/anjee-solanki/retail-horoscope-2019/#commentsThu, 27 Dec 2018 15:25:30 +0000http://knowledge-leader.colliers.com/?p=7435

What a year it’s been for brands, retailers and their lease-holding landlords. Their main focus has always been establishing stronger connections with consumers. From social impact to reinventing property holdings...

What a year it’s been for brands, retailers and their lease-holding landlords. Their main focus has always been establishing stronger connections with consumers. From social impact to reinventing property holdings and exploring new markets for revenue, major players in the retail services sector will need to think outside the box to secure a larger share of the market. I predict three areas will have the most impact on how business is conducted in 2019 starting with real estate investments by digitally native brands, corporate social responsibility and the reinvention of the toy market.

Everything old is new again

What’s old is new again as digitally native brands come around to the idea of embracing retail’s omnichannel strategies. Experts estimate that over 800 brands with online origins will expand their consumer approach by leveraging wholesale strategies and physical retail stores. The likes of Everlane and Bonobos are filling vacancies in shopping malls and retail corridors, strategically mapping location choices to where their consumers are shopping.
Landlords, eager to refresh their property offerings, are actively negotiating short-term leases with extension options, and in some cases, assisting with remodeling packages. Take BrandBox, a retail concept launched by Macerich in Santa Monica, CA, that provides e-commerce sites with an opportunity to safely test their brands with a mainstream audience. Naadam and Winky Lux—both native to online—debuted mini-stores at the recently reinvented Tysons Corner Center in Washington, D.C. Brands that have experienced success with test-run pop-ups realize the increased revenue potential of providing an offline experience to whet the appetites of their consumers. And the list of potential brands looking to explore brick-and-mortar as a supplementary revenue stream is growing, as highlighted by The Lead, a research management firm that focuses on the intersection of fashion, retail and real estate data.
The idea of pop-ups has inspired innovative thinking by retailers, landlords and city officials, too. Earlier this month the Chicago City Council passed an ordinance requiring pop-ups get licensed to encourage experimentation with retail economic development in corridors throughout the city.

The Season of Giving

Implementing a corporate social responsibility strategy has become the norm for companies seeking to boost their brand equity. And with a whopping 87% of consumers seeking companies that support causes they care about, it’s no surprise that brands are stepping up their efforts. Here are just a few highlights of what some retailers are doing to support the causes their consumers care about:

Consumers and retailers revere Barney's holiday windows, and this year’s partnership with Save the Children does not disappoint. The luxury retailer has dedicated their windows to visually depict the impact of a single coin and how it can create real change in the life of a child. Check out the sentiments behind the #centiments campaign where every penny counts.

BoxLunch has quietly emerged onto the mall scene, with over 100 stores across the country. Coined as “a civic-minded web + brick-and-mortar-based specialty retailer” BoxLunch offers a curated collection of pop culture-themed merchandise with a philanthropic twist. For every $10 worth of merchandise purchased, the company donates a meal to those in need through Feeding America.

So Many Toys So Little Time

With more than $4 billion in business on the table, Amazon, Target, Walmart and other retailers are looking to fill the toy chasm created by the demise of Toys ‘R Us. A sizeable chunk—about 40% of those purchases—takes place during the holiday season, so a lot is riding on how well these players perform over the next few weeks. I think it’s safe to say that all three retailers will secure a slice of the pie and that Amazon, with the most inventory, is likely to be the strongest contender simply because consumers can find anything on their site.
Earlier in the season, Amazon released its first-ever printed toy catalog (minus prices which fluctuate thanks to the site’s competitive pricing algorithm) to drive online purchases. Target and Walmart, in preparation for the holiday toy rush, remodeled a percentage of their stores with kids in mind adding dedicated areas for books and toys. Barnes and Noble and Kroger are making similar moves; Party City is also throwing its hat into the playpen with pop-up Toy City stores for the season.
Fans of FAO Schwarz filled the iconic toy retailer’s flagship Thanksgiving weekend when it reopened in the heart of Rockefeller Center. The store is one of many to come as its parent, ThreeSixtyBrands, reinvents FAO Schwarz’s distribution strategy. Taking a chapter from new retail, the toy brand plans to create stores within stores at larger retailers as well as explore adding boutiques to airport terminals (a concept Amazon is planning for its Go product). And the luxury toy market is resurging with a little competition from Hamley’s, the world’s oldest toy store in the UK. Reports suggest that the store is cinching a deal to lease a 30,000 square-foot space at 2 Herald Square, across the street from Macy’s HQ in NYC.
…
What opportunities do you foresee in 2019? Tweet me @anjeesolankiCRE to join the conversation. Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>

What a year it’s been for brands, retailers and their lease-holding landlords. Their main focus has always been establishing stronger connections with consumers. From social impact to reinventing property holdings...

What a year it’s been for brands, retailers and their lease-holding landlords. Their main focus has always been establishing stronger connections with consumers. From social impact to reinventing property holdings and exploring new markets for revenue, major players in the retail services sector will need to think outside the box to secure a larger share of the market. I predict three areas will have the most impact on how business is conducted in 2019 starting with real estate investments by digitally native brands, corporate social responsibility and the reinvention of the toy market.

Everything old is new again

What’s old is new again as digitally native brands come around to the idea of embracing retail’s omnichannel strategies. Experts estimate that over 800 brands with online origins will expand their consumer approach by leveraging wholesale strategies and physical retail stores. The likes of Everlane and Bonobos are filling vacancies in shopping malls and retail corridors, strategically mapping location choices to where their consumers are shopping.
Landlords, eager to refresh their property offerings, are actively negotiating short-term leases with extension options, and in some cases, assisting with remodeling packages. Take BrandBox, a retail concept launched by Macerich in Santa Monica, CA, that provides e-commerce sites with an opportunity to safely test their brands with a mainstream audience. Naadam and Winky Lux—both native to online—debuted mini-stores at the recently reinvented Tysons Corner Center in Washington, D.C. Brands that have experienced success with test-run pop-ups realize the increased revenue potential of providing an offline experience to whet the appetites of their consumers. And the list of potential brands looking to explore brick-and-mortar as a supplementary revenue stream is growing, as highlighted by The Lead, a research management firm that focuses on the intersection of fashion, retail and real estate data.
The idea of pop-ups has inspired innovative thinking by retailers, landlords and city officials, too. Earlier this month the Chicago City Council passed an ordinance requiring pop-ups get licensed to encourage experimentation with retail economic development in corridors throughout the city.

The Season of Giving

Implementing a corporate social responsibility strategy has become the norm for companies seeking to boost their brand equity. And with a whopping 87% of consumers seeking companies that support causes they care about, it’s no surprise that brands are stepping up their efforts. Here are just a few highlights of what some retailers are doing to support the causes their consumers care about:

Consumers and retailers revere Barney's holiday windows, and this year’s partnership with Save the Children does not disappoint. The luxury retailer has dedicated their windows to visually depict the impact of a single coin and how it can create real change in the life of a child. Check out the sentiments behind the #centiments campaign where every penny counts.

BoxLunch has quietly emerged onto the mall scene, with over 100 stores across the country. Coined as “a civic-minded web + brick-and-mortar-based specialty retailer” BoxLunch offers a curated collection of pop culture-themed merchandise with a philanthropic twist. For every $10 worth of merchandise purchased, the company donates a meal to those in need through Feeding America.

So Many Toys So Little Time

With more than $4 billion in business on the table, Amazon, Target, Walmart and other retailers are looking to fill the toy chasm created by the demise of Toys ‘R Us. A sizeable chunk—about 40% of those purchases—takes place during the holiday season, so a lot is riding on how well these players perform over the next few weeks. I think it’s safe to say that all three retailers will secure a slice of the pie and that Amazon, with the most inventory, is likely to be the strongest contender simply because consumers can find anything on their site.
Earlier in the season, Amazon released its first-ever printed toy catalog (minus prices which fluctuate thanks to the site’s competitive pricing algorithm) to drive online purchases. Target and Walmart, in preparation for the holiday toy rush, remodeled a percentage of their stores with kids in mind adding dedicated areas for books and toys. Barnes and Noble and Kroger are making similar moves; Party City is also throwing its hat into the playpen with pop-up Toy City stores for the season.
Fans of FAO Schwarz filled the iconic toy retailer’s flagship Thanksgiving weekend when it reopened in the heart of Rockefeller Center. The store is one of many to come as its parent, ThreeSixtyBrands, reinvents FAO Schwarz’s distribution strategy. Taking a chapter from new retail, the toy brand plans to create stores within stores at larger retailers as well as explore adding boutiques to airport terminals (a concept Amazon is planning for its Go product). And the luxury toy market is resurging with a little competition from Hamley’s, the world’s oldest toy store in the UK. Reports suggest that the store is cinching a deal to lease a 30,000 square-foot space at 2 Herald Square, across the street from Macy’s HQ in NYC.
…
What opportunities do you foresee in 2019? Tweet me @anjeesolankiCRE to join the conversation. Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>https://knowledge-leader.colliers.com/anjee-solanki/retail-horoscope-2019/feed/1What Should Your Next Move Be?https://knowledge-leader.colliers.com/dany_koe/what-should-your-next-move-be/
https://knowledge-leader.colliers.com/dany_koe/what-should-your-next-move-be/#respondWed, 26 Dec 2018 15:08:33 +0000http://knowledge-leader.colliers.com/?p=7418

This piece is a collaboration between Dany Koe and Drew Levine of the Colliers | Atlanta Office Services Group. From site selection to lease negotiations to post-transaction strategies, Dany and...

This piece is a collaboration between Dany Koe and Drew Levine of the Colliers | Atlanta Office Services Group. From site selection to lease negotiations to post-transaction strategies, Dany and Drew serve as trusted partners for our clients throughout Metro Atlanta and around the globe.
There are more options today than there has ever been for office occupiers, and that’s not always a good thing. It can be overwhelming to try to figure out which option is best for your company’s success. Should you embrace the entrepreneurial atmosphere of a coworking space? Should you opt for the flexibility of a sublease space? Or should you cut costs and go for the cheaper long-term option of a direct lease? If you’re reading this article, we don’t need to tell you that the answer is not a simple one. If it was, you wouldn’t be here. So, let’s jump right into it and break down the pros and cons of each option and which work best for which types of office occupiers.

Coworking Office Space

Coworking space is all the craze right now and according to our very own Scott Amoson, Vice President of Research, it’s not only here to stay, but is expected to increase going forward. Coworking is a collaborative work environment that involves a shared workplace. Many coworking options offer varying levels of privacy and collaboration. Members can rent access to common areas, single desks, private offices and even team spaces.
While you may initially associate it with casual, jean-wearing techies or creatives the coworking sub-sector is much more robust than that. Of course, WeWork is the top-of-mind giant typically associated with the more relaxed demographic but other companies are challenging the coworking status quo such as Serendipity Labs, Industrious and Spaces all who are offering options for the more professional office occupiers. So, is coworking right for you? Here are some pros and cons to consider:
Flexible Lease Terms
Coworking space offers occupiers the most flexible option for lease terms. For instance, WeWork offers month-to-month lease options terminable anytime; however, companies can find economies of scale by signing for one year or more. For ambitious start-ups, flexible lease terms are attractive because it means you can focus on growing your company without having to worry about the constraints of a 5-year direct lease. Not only are the lease terms flexible, but they’re relatively straight forward. Some aren’t even leases at all, but memberships similar to what you’d sign up for at LA Fitness.
Low Start Up Costs
When coworking started around 10 years ago, it was targeted towards start-ups and freelancers because it cut start-up costs typically associated with traditional office real estate. Coworking spaces are plug-n-play, meaning show up with your laptop and you’re ready to go, you don’t have to spend hundreds of thousands on furniture or improvements. This is especially important to start-ups who typically don’t have the credit to negotiate hefty tenant improvement allowances in direct leases.
Networking Opportunities
While coworking started as a solution for start-ups and freelancers, it now attracts some of the world’s top companies like Microsoft, Verizon and IBM. The networking opportunities in coworking space allows for these tech giants to access talent, innovation and investment opportunities. For smaller companies, it can provide the opportunity for collaboration and synergy among members.
Long-term Costs
While the initial start-up costs for coworking space is attractive, don’t let that fool you. As you scale your business, the long-term costs can be exponential. Those costs can eventually become growth prohibitive. We have seen some companies in leading coworking spaces spending as much as three times the rental amount per square foot compared to direct space. Take for instance a recent client of ours who spent more than $35,000 a month for a coworking space prior to signing a direct lease.
Lack of Personal Space
Probably the most obvious downside to coworking is the actual co-working. Many of our clients who have moved from coworking space felt that it lacked privacy and confidentiality. Even in private offices and team spaces, professional privacy can be an issue when surrounded by the characteristic glass walls found in typical coworking. As you could imagine, it’s also fairly noisy as hundreds of independent businesses are operating in an open space simultaneously. Lack of personal space also throws a wrench in a company’s ability to define and express its own culture and identity.
Who is Coworking Best For?

Start-ups and freelancers: Coworking can be the perfect solution for start-ups and freelancers who could benefit from the minimal start-up costs, networking opportunities and flexible lease terms.

Tech/Creative companies: For tech companies who are looking to access talent and innovation, coworking could be an excellent innovation strategy.

Sublease Office Space

Sublease space comes about when a tenant with an active lease has unused space prior to the termination of the lease agreement. To recover some, or all, of the costs associated with that unused space, the tenant places it on the market as a sublease opportunity. Subleases are still considered traditional lease transactions and require comprehensive documents to outline the responsibilities and obligations of the subtenant, sublessor and landlord. Subleasing provides some unique benefits and can be a viable option to office occupiers. What are some of the pros and cons of subleasing and is it right for your company?
Economical
Subleases are typically a cost-efficient solution for growing companies. The savings are two-fold and can be recognized in both capital and operating expenses. For instance, many subleases come with next-to-new furniture and plug-n-play capabilities — reducing the need for initial startup capital. From an operating perspective, sublease rents can be up to 50% less than market rates. Not only are subleases cheaper, they can also provide subtenants with more room to grow their business because often the spaces being subleased are larger than the current requirements of the subtenant.
Flexibility
One myth about subleasing is that it’s not a flexible option when compared to coworking, but many times a good real estate advisor can work with you to identify or negotiate short-term sublease opportunities. We’ve been able to negotiate one-year termination clauses into three-year subleases as well as securing subleases as short as 12 months. On a different flexibility spectrum, subtenants can typically make minor design changes such as painting, furniture and signage to better reflect their company’s culture and brand and they can often move in to the space within several days.
Limited Perks
Whether the sublease space is vacant or occupied the original tenant still has an obligation to the landlord, so from a landlord’s perspective, there’s no financial benefit to offering the typical perks that accompany direct leases like free rent or compensation to design and construct the space. There is also the risk of losing a sublease space even after occupying it if the sublessor defaults on the original lease.
Supply
Supply of sublease space is typically very low in any given market. For example, in Q3 2018, the supply of sublease space in the Atlanta market made up just 0.8% of the total office market. With such a small percentage of available space it can be difficult for office occupiers to find a sublease space that works for their needs.
Who is Subleasing Best For?

Companies in growth mode: Sublease space is an excellent opportunity for young, growing companies to expand their operations, workforce and create their own identity.

Companies new to an area: Companies who are expanding and are new to a geographic area can benefit from the flexibility of sublease space.

Direct Lease

Direct leases are the most common type of lease transactions and include a comprehensive leasing agreement. This agreement outlines the mutual responsibilities between the owner of the property and the occupier. Because they are the most common, rental rates for direct leases typically define the market they’re in. For instance, in Atlanta in Q3 2018, that rate was $25.75 per square foot of office space. Direct lease rates are highly flexible among a metro area’s districts. Take for instance Atlanta’s Midtown and Buckhead districts whose Class A spaces range from $45 to $50 per square foot while the Cumberland, Central Perimeter and Downtown markets hover between $25 and $35 per square foot.
While direct leases are the most common, they aren’t always the best option for everyone. Here’s what you need to know about direct leases:
Best Long-Term Strategy
In terms of cost, direct leases are the best long-term strategy for a company with steady, definable growth. With good representation, tenants in direct leases can negotiate reduced market rents, compensation for construction (tenant improvement allowances), and even months-worth of free rent. Tenants can also negotiate lease options such as early terminations and expansion options to mitigate risks.
Cultural Identity
No other lease option offers the freedom to develop your company culture as well as a direct lease does. Tenants in direct space can custom design a space to fit their budget, culture and style of work. As mentioned above, landlords typically provide an allowance for tenants to improve the space to their desires with minimal limitations. Many direct leases also offer signage options ranging from standard monument signage to premium building signage.
Control
In a sublease situation, the subtenant is at the mercy of a sublessor’s financial responsibility to the landlord. If the sublessor doesn’t pay, the subtenant could be out of luck. In a direct lease, the tenant has full control over their fate in their space.
High Startup Cost
Direct leases require high initial startup costs which usually include a direct deposit, furniture, cabling and any construction costs in excess of the tenant improvement allowance provided by the landlord. This requires tenants to have initial startup capital that can be difficult to acquire for young companies.
Less Flexibility
While both coworking and subleasing have relatively flexible lease terms, direct leasing is the opposite. Although some landlords are realizing the competition from coworking and offering more flexible terms, traditionally direct leases require lengthy lease terms to reap the cost benefits mentioned above. Not only that, but direct leases are typically a long, drawn-out process that can take months to finalize.
Who is Direct Leasing Best For?

Companies with predictable growth: Companies who can map out their growth trajectory over the long-term would benefit from the cheaper long-term costs of a direct lease

Companies strengthening their brand: Companies who want to strengthen their brand and corporate culture should consider direct leases for the freedoms they provide

Companies with good credit: Companies with good credit are attractive to landlords because of the low risk involved. These companies can typically negotiate the best perks and can also easily acquire the initial capital required

How to Decide

We’ve discussed just some of the factors that will affect your decision, but there are many more nuances and circumstances that will play a role in determining the right strategy for your company. The right choice will be just as unique as your company’s culture, goals and strategies. For that reason, regardless of where your next move is it’s important to start early and to understand how the unique features that differentiate your company will also determine the best decision.]]>

This piece is a collaboration between Dany Koe and Drew Levine of the Colliers | Atlanta Office Services Group. From site selection to lease negotiations to post-transaction strategies, Dany and...

This piece is a collaboration between Dany Koe and Drew Levine of the Colliers | Atlanta Office Services Group. From site selection to lease negotiations to post-transaction strategies, Dany and Drew serve as trusted partners for our clients throughout Metro Atlanta and around the globe.
There are more options today than there has ever been for office occupiers, and that’s not always a good thing. It can be overwhelming to try to figure out which option is best for your company’s success. Should you embrace the entrepreneurial atmosphere of a coworking space? Should you opt for the flexibility of a sublease space? Or should you cut costs and go for the cheaper long-term option of a direct lease? If you’re reading this article, we don’t need to tell you that the answer is not a simple one. If it was, you wouldn’t be here. So, let’s jump right into it and break down the pros and cons of each option and which work best for which types of office occupiers.

Coworking Office Space

Coworking space is all the craze right now and according to our very own Scott Amoson, Vice President of Research, it’s not only here to stay, but is expected to increase going forward. Coworking is a collaborative work environment that involves a shared workplace. Many coworking options offer varying levels of privacy and collaboration. Members can rent access to common areas, single desks, private offices and even team spaces.
While you may initially associate it with casual, jean-wearing techies or creatives the coworking sub-sector is much more robust than that. Of course, WeWork is the top-of-mind giant typically associated with the more relaxed demographic but other companies are challenging the coworking status quo such as Serendipity Labs, Industrious and Spaces all who are offering options for the more professional office occupiers. So, is coworking right for you? Here are some pros and cons to consider:
Flexible Lease Terms
Coworking space offers occupiers the most flexible option for lease terms. For instance, WeWork offers month-to-month lease options terminable anytime; however, companies can find economies of scale by signing for one year or more. For ambitious start-ups, flexible lease terms are attractive because it means you can focus on growing your company without having to worry about the constraints of a 5-year direct lease. Not only are the lease terms flexible, but they’re relatively straight forward. Some aren’t even leases at all, but memberships similar to what you’d sign up for at LA Fitness.
Low Start Up Costs
When coworking started around 10 years ago, it was targeted towards start-ups and freelancers because it cut start-up costs typically associated with traditional office real estate. Coworking spaces are plug-n-play, meaning show up with your laptop and you’re ready to go, you don’t have to spend hundreds of thousands on furniture or improvements. This is especially important to start-ups who typically don’t have the credit to negotiate hefty tenant improvement allowances in direct leases.
Networking Opportunities
While coworking started as a solution for start-ups and freelancers, it now attracts some of the world’s top companies like Microsoft, Verizon and IBM. The networking opportunities in coworking space allows for these tech giants to access talent, innovation and investment opportunities. For smaller companies, it can provide the opportunity for collaboration and synergy among members.
Long-term Costs
While the initial start-up costs for coworking space is attractive, don’t let that fool you. As you scale your business, the long-term costs can be exponential. Those costs can eventually become growth prohibitive. We have seen some companies in leading coworking spaces spending as much as three times the rental amount per square foot compared to direct space. Take for instance a recent client of ours who spent more than $35,000 a month for a coworking space prior to signing a direct lease.
Lack of Personal Space
Probably the most obvious downside to coworking is the actual co-working. Many of our clients who have moved from coworking space felt that it lacked privacy and confidentiality. Even in private offices and team spaces, professional privacy can be an issue when surrounded by the characteristic glass walls found in typical coworking. As you could imagine, it’s also fairly noisy as hundreds of independent businesses are operating in an open space simultaneously. Lack of personal space also throws a wrench in a company’s ability to define and express its own culture and identity.
Who is Coworking Best For?

Start-ups and freelancers: Coworking can be the perfect solution for start-ups and freelancers who could benefit from the minimal start-up costs, networking opportunities and flexible lease terms.

Tech/Creative companies: For tech companies who are looking to access talent and innovation, coworking could be an excellent innovation strategy.

Sublease Office Space

Sublease space comes about when a tenant with an active lease has unused space prior to the termination of the lease agreement. To recover some, or all, of the costs associated with that unused space, the tenant places it on the market as a sublease opportunity. Subleases are still considered traditional lease transactions and require comprehensive documents to outline the responsibilities and obligations of the subtenant, sublessor and landlord. Subleasing provides some unique benefits and can be a viable option to office occupiers. What are some of the pros and cons of subleasing and is it right for your company?
Economical
Subleases are typically a cost-efficient solution for growing companies. The savings are two-fold and can be recognized in both capital and operating expenses. For instance, many subleases come with next-to-new furniture and plug-n-play capabilities — reducing the need for initial startup capital. From an operating perspective, sublease rents can be up to 50% less than market rates. Not only are subleases cheaper, they can also provide subtenants with more room to grow their business because often the spaces being subleased are larger than the current requirements of the subtenant.
Flexibility
One myth about subleasing is that it’s not a flexible option when compared to coworking, but many times a good real estate advisor can work with you to identify or negotiate short-term sublease opportunities. We’ve been able to negotiate one-year termination clauses into three-year subleases as well as securing subleases as short as 12 months. On a different flexibility spectrum, subtenants can typically make minor design changes such as painting, furniture and signage to better reflect their company’s culture and brand and they can often move in to the space within several days.
Limited Perks
Whether the sublease space is vacant or occupied the original tenant still has an obligation to the landlord, so from a landlord’s perspective, there’s no financial benefit to offering the typical perks that accompany direct leases like free rent or compensation to design and construct the space. There is also the risk of losing a sublease space even after occupying it if the sublessor defaults on the original lease.
Supply
Supply of sublease space is typically very low in any given market. For example, in Q3 2018, the supply of sublease space in the Atlanta market made up just 0.8% of the total office market. With such a small percentage of available space it can be difficult for office occupiers to find a sublease space that works for their needs.
Who is Subleasing Best For?

Companies in growth mode: Sublease space is an excellent opportunity for young, growing companies to expand their operations, workforce and create their own identity.

Companies new to an area: Companies who are expanding and are new to a geographic area can benefit from the flexibility of sublease space.

Direct Lease

Direct leases are the most common type of lease transactions and include a comprehensive leasing agreement. This agreement outlines the mutual responsibilities between the owner of the property and the occupier. Because they are the most common, rental rates for direct leases typically define the market they’re in. For instance, in Atlanta in Q3 2018, that rate was $25.75 per square foot of office space. Direct lease rates are highly flexible among a metro area’s districts. Take for instance Atlanta’s Midtown and Buckhead districts whose Class A spaces range from $45 to $50 per square foot while the Cumberland, Central Perimeter and Downtown markets hover between $25 and $35 per square foot.
While direct leases are the most common, they aren’t always the best option for everyone. Here’s what you need to know about direct leases:
Best Long-Term Strategy
In terms of cost, direct leases are the best long-term strategy for a company with steady, definable growth. With good representation, tenants in direct leases can negotiate reduced market rents, compensation for construction (tenant improvement allowances), and even months-worth of free rent. Tenants can also negotiate lease options such as early terminations and expansion options to mitigate risks.
Cultural Identity
No other lease option offers the freedom to develop your company culture as well as a direct lease does. Tenants in direct space can custom design a space to fit their budget, culture and style of work. As mentioned above, landlords typically provide an allowance for tenants to improve the space to their desires with minimal limitations. Many direct leases also offer signage options ranging from standard monument signage to premium building signage.
Control
In a sublease situation, the subtenant is at the mercy of a sublessor’s financial responsibility to the landlord. If the sublessor doesn’t pay, the subtenant could be out of luck. In a direct lease, the tenant has full control over their fate in their space.
High Startup Cost
Direct leases require high initial startup costs which usually include a direct deposit, furniture, cabling and any construction costs in excess of the tenant improvement allowance provided by the landlord. This requires tenants to have initial startup capital that can be difficult to acquire for young companies.
Less Flexibility
While both coworking and subleasing have relatively flexible lease terms, direct leasing is the opposite. Although some landlords are realizing the competition from coworking and offering more flexible terms, traditionally direct leases require lengthy lease terms to reap the cost benefits mentioned above. Not only that, but direct leases are typically a long, drawn-out process that can take months to finalize.
Who is Direct Leasing Best For?

Companies with predictable growth: Companies who can map out their growth trajectory over the long-term would benefit from the cheaper long-term costs of a direct lease

Companies strengthening their brand: Companies who want to strengthen their brand and corporate culture should consider direct leases for the freedoms they provide

Companies with good credit: Companies with good credit are attractive to landlords because of the low risk involved. These companies can typically negotiate the best perks and can also easily acquire the initial capital required

How to Decide

We’ve discussed just some of the factors that will affect your decision, but there are many more nuances and circumstances that will play a role in determining the right strategy for your company. The right choice will be just as unique as your company’s culture, goals and strategies. For that reason, regardless of where your next move is it’s important to start early and to understand how the unique features that differentiate your company will also determine the best decision.]]>https://knowledge-leader.colliers.com/dany_koe/what-should-your-next-move-be/feed/0Holiday Returns and Reverse Logistics: What the Holidays Mean for the Supply Chainhttps://knowledge-leader.colliers.com/gregory-healy/holiday-returns-reverse-logistics-holidays-mean-supply-chain/
https://knowledge-leader.colliers.com/gregory-healy/holiday-returns-reverse-logistics-holidays-mean-supply-chain/#respondFri, 21 Dec 2018 20:25:29 +0000http://knowledge-leader.colliers.com/?p=7426

Economists aren’t looking at just strong holiday sales numbers anymore. For the last several years, what happens after the holiday season has received just as much scrutiny. Last year’s holiday...

Economists aren’t looking at just strong holiday sales numbers anymore. For the last several years, what happens after the holiday season has received just as much scrutiny.
Last year’s holiday sales numbers were the strongest since 2011. Early indicators for the 2018 holiday season project a robust gain once again this year, with a 4.3-4.8% sales increase and online sales topping $110 billion. To reduce the pressures of moving so much product over the short holiday period, online retailers have made efforts to extend the holiday shopping season, marketing an earlier start.
When analyzing post-holiday return activity, TheWall Street Journal reported that in January and February of 2016 alone, returned and overstocked items totaled $554 billion, with that amount growing at about 7.5% each year. And, with continued growth in holiday sales, January through March are the busiest months for reverse logistics, or the return of merchandise from its final consumer destination. About 13% of sold items, or $90 billion, will be returned through the end of February.
A holistic look at the supply chain leaves unanswered questions about what to do with returned items. What is the most cost effective way of managing returns? What is the most space effective way of not letting a mountain of returns gum up the efficiency of the distribution facility? How does the company efficiently process returned goods to minimize their impact of eroding holiday profits?
Senior Vice President Gregory Healy leads Colliers’ Supply Chain and Logistics consulting practice, and this year he’s turning his attention to the impact of reverse logistics on corporate users.
“It’s the big elephant in the room every year when it comes to this season. These returns represent a huge expense for companies when it comes to e-commerce. Every return cuts into already slim profits, especially for e-commerce transactions where transportation costs are high and ever-increasing.”
E-commerce consumers seek, and have come to expect, free shipping and free returns. These increasing higher expectations of free shipping have created a challenge, as companies are scrambling to keep redefine how they process returns to mitigate the impact on profits.
“On the outbound alone, shipping costs are already estimated to run about 50% of supply chain costs, and the last 25% of those costs are typically associated with the last mile, or the cost from the hub distribution center to the end consumer. With returns, companies are basically paying that transportation cost again — and more — to reintroduce that product back into the supply chain,” Healy says.
“The cost and influx of returns jams up distribution centers. The peak holiday season is focused on delivering outbound product with holiday sales, and to accept returns slows down operations and is incredibly labor intensive. It’s a big issue,” adds Healy.
So, what can logistics leaders do to minimize the impact of returns?

Recent Reverse Logistics Solutions

A reverse logistics report from the U.S. Postal Service states that “products bought at brick-and-mortar stores are returned around 9% of the time. The return rate for online purchases is nearly three times higher at 25-30%, and totals between $113 billion and $132 billion in the U.S. annually.”
Not only is the return rate higher for e-commerce businesses, but they also cost more. A recent report on reverse logistics in Supply Chain Quarterly noted that costs associated with processing returns are as much as 8-15% of a company’s top line.
A retail innovation designed to mitigate this challenge includes encouraging consumers to take their returns to brick-and-mortar locations. Nordstrom is trying Nordstrom Local, a physical space without inventory where customers can pick up and try on their online purchases without the straight-to-consumer shipping costs.
But this approach brings additional considerations. E-commerce companies will need to locate and pay for more space and will need to hire staff for those spaces. With historically-low unemployment rates, staffing could prove to be challenging.
As Amazon continues to grow, an ironic problem the e-commerce giant has encountered is its lack of brick-and-mortar locations for returns. The reverse logistics of returns reduce its profits since customers can’t return product to a store. Competitors like Walmart and Target have leveraged this to their advantage, as their vast network of stores provide a convenient alternative for omnichannel distribution and in-store returns of online purchases — an edge because of their vast network of storefronts to manage online returns.
Amazon now offers return drop-off locations in urban areas, and an expanding partnership with Kohl’s to encourage consumers to physically return products rather than take advantage of their generous and expensive free return shipping. A mutually beneficial relationship, Kohl’s has seen an uptick in sales because the program brings additional foot traffic into their stores when they make Amazon returns, and Kohl’s frequently offers in-store coupons to customers when processing returns.
“Unlike shopping center parking lots which are designed to support the holiday traffic, distribution centers do not have the luxury of building for the maximum capacity of the holidays. With the addition of returns in the DC, the space constraints can severely impact the efficiency of the operation, forcing e-commerce retailers to process shipments faster to free up space, or in the short-term look for off-site locations.” Healy notes, “space is valuable, and with a high level of returns comes an increased cost for both labor and space.”
Healy says that distribution centers and warehouses typically receive “a build-up of holiday product from August through December to support the season. It’s typical that once a distribution center is full, oftentimes bulk storage is moved offsite for the interim period. Coupled with customer returns, this influx creates a space issue. You can’t easily stack returns in the outbound processing area.”

Giving for Good

When returns are received at warehouse distribution centers, companies must determine if the product is re-sellable and can be placed back into inventory, or not re-sellable and needs to be disposed. In many cases, it is more time, labor and cost efficient to simply dispose of a returned good. Last year, CNN reported that 5 billion pounds of returned items would end up in a landfill.
According to Healy, a more effective and responsible approach, which some companies are already adopting, is to donate returned items. This eliminates the transportation cost of returning the goods, the labor cost of processing and restocking as well as the associated real estate costs for the facility. Moreover, for the company, there are tax incentives as companies can write off these donations.
Tax deductible, in-kind giving is one way to solve this complicated and expensive reverse logistics problem. Several organizations specialize in helping coordinate and streamline these donations, including Waste To Charity and Good360.
Good360 coordinates this product philanthropy approach by partnering with vetted nonprofits. Their website touts this statement, “Companies that donate to charity in this regard can help to streamline their reverse logistic approach, and they may also be eligible for tax reductions too. In fact, these deductions are often greater than the earnings a company might receive by liquidating these products.”
Healy says retailers could make a shift by offering a refund to customers — and then encouraging them to donate their unwanted items instead of sending those items back as free returns.
“The return process is so expensive; we’re finding more and more retailers saying, ‘don’t ship it back to us,’ — it’s too expensive to operate in this model. They could do something charitable instead. The holidays are usually a time of year for giving, and donating e-commerce mis-ships and mistakes would alleviate return pressure on the supply chain as well.”
Business leaders could make consumers happy by providing return options, do away with issues of extra transportation, labor and storage space costs and make large, sustainable, tax-deductible donations each year. It’s a win-win solution.
Gregory Healy, Senior Vice President, leads the U.S. Supply Chain and Logistics Consulting team. With over 20 years of global manufacturing and supply chain experience as both as a senior executive in the corporate world, as well as owning a supply chain consulting practice and a third party logistics business, Gregory has real world experience that brings a unique perspective to the Colliers team.]]>

Economists aren’t looking at just strong holiday sales numbers anymore. For the last several years, what happens after the holiday season has received just as much scrutiny. Last year’s holiday...

Economists aren’t looking at just strong holiday sales numbers anymore. For the last several years, what happens after the holiday season has received just as much scrutiny.
Last year’s holiday sales numbers were the strongest since 2011. Early indicators for the 2018 holiday season project a robust gain once again this year, with a 4.3-4.8% sales increase and online sales topping $110 billion. To reduce the pressures of moving so much product over the short holiday period, online retailers have made efforts to extend the holiday shopping season, marketing an earlier start.
When analyzing post-holiday return activity, TheWall Street Journal reported that in January and February of 2016 alone, returned and overstocked items totaled $554 billion, with that amount growing at about 7.5% each year. And, with continued growth in holiday sales, January through March are the busiest months for reverse logistics, or the return of merchandise from its final consumer destination. About 13% of sold items, or $90 billion, will be returned through the end of February.
A holistic look at the supply chain leaves unanswered questions about what to do with returned items. What is the most cost effective way of managing returns? What is the most space effective way of not letting a mountain of returns gum up the efficiency of the distribution facility? How does the company efficiently process returned goods to minimize their impact of eroding holiday profits?
Senior Vice President Gregory Healy leads Colliers’ Supply Chain and Logistics consulting practice, and this year he’s turning his attention to the impact of reverse logistics on corporate users.
“It’s the big elephant in the room every year when it comes to this season. These returns represent a huge expense for companies when it comes to e-commerce. Every return cuts into already slim profits, especially for e-commerce transactions where transportation costs are high and ever-increasing.”
E-commerce consumers seek, and have come to expect, free shipping and free returns. These increasing higher expectations of free shipping have created a challenge, as companies are scrambling to keep redefine how they process returns to mitigate the impact on profits.
“On the outbound alone, shipping costs are already estimated to run about 50% of supply chain costs, and the last 25% of those costs are typically associated with the last mile, or the cost from the hub distribution center to the end consumer. With returns, companies are basically paying that transportation cost again — and more — to reintroduce that product back into the supply chain,” Healy says.
“The cost and influx of returns jams up distribution centers. The peak holiday season is focused on delivering outbound product with holiday sales, and to accept returns slows down operations and is incredibly labor intensive. It’s a big issue,” adds Healy.
So, what can logistics leaders do to minimize the impact of returns?

Recent Reverse Logistics Solutions

A reverse logistics report from the U.S. Postal Service states that “products bought at brick-and-mortar stores are returned around 9% of the time. The return rate for online purchases is nearly three times higher at 25-30%, and totals between $113 billion and $132 billion in the U.S. annually.”
Not only is the return rate higher for e-commerce businesses, but they also cost more. A recent report on reverse logistics in Supply Chain Quarterly noted that costs associated with processing returns are as much as 8-15% of a company’s top line.
A retail innovation designed to mitigate this challenge includes encouraging consumers to take their returns to brick-and-mortar locations. Nordstrom is trying Nordstrom Local, a physical space without inventory where customers can pick up and try on their online purchases without the straight-to-consumer shipping costs.
But this approach brings additional considerations. E-commerce companies will need to locate and pay for more space and will need to hire staff for those spaces. With historically-low unemployment rates, staffing could prove to be challenging.
As Amazon continues to grow, an ironic problem the e-commerce giant has encountered is its lack of brick-and-mortar locations for returns. The reverse logistics of returns reduce its profits since customers can’t return product to a store. Competitors like Walmart and Target have leveraged this to their advantage, as their vast network of stores provide a convenient alternative for omnichannel distribution and in-store returns of online purchases — an edge because of their vast network of storefronts to manage online returns.
Amazon now offers return drop-off locations in urban areas, and an expanding partnership with Kohl’s to encourage consumers to physically return products rather than take advantage of their generous and expensive free return shipping. A mutually beneficial relationship, Kohl’s has seen an uptick in sales because the program brings additional foot traffic into their stores when they make Amazon returns, and Kohl’s frequently offers in-store coupons to customers when processing returns.
“Unlike shopping center parking lots which are designed to support the holiday traffic, distribution centers do not have the luxury of building for the maximum capacity of the holidays. With the addition of returns in the DC, the space constraints can severely impact the efficiency of the operation, forcing e-commerce retailers to process shipments faster to free up space, or in the short-term look for off-site locations.” Healy notes, “space is valuable, and with a high level of returns comes an increased cost for both labor and space.”
Healy says that distribution centers and warehouses typically receive “a build-up of holiday product from August through December to support the season. It’s typical that once a distribution center is full, oftentimes bulk storage is moved offsite for the interim period. Coupled with customer returns, this influx creates a space issue. You can’t easily stack returns in the outbound processing area.”

Giving for Good

When returns are received at warehouse distribution centers, companies must determine if the product is re-sellable and can be placed back into inventory, or not re-sellable and needs to be disposed. In many cases, it is more time, labor and cost efficient to simply dispose of a returned good. Last year, CNN reported that 5 billion pounds of returned items would end up in a landfill.
According to Healy, a more effective and responsible approach, which some companies are already adopting, is to donate returned items. This eliminates the transportation cost of returning the goods, the labor cost of processing and restocking as well as the associated real estate costs for the facility. Moreover, for the company, there are tax incentives as companies can write off these donations.
Tax deductible, in-kind giving is one way to solve this complicated and expensive reverse logistics problem. Several organizations specialize in helping coordinate and streamline these donations, including Waste To Charity and Good360.
Good360 coordinates this product philanthropy approach by partnering with vetted nonprofits. Their website touts this statement, “Companies that donate to charity in this regard can help to streamline their reverse logistic approach, and they may also be eligible for tax reductions too. In fact, these deductions are often greater than the earnings a company might receive by liquidating these products.”
Healy says retailers could make a shift by offering a refund to customers — and then encouraging them to donate their unwanted items instead of sending those items back as free returns.
“The return process is so expensive; we’re finding more and more retailers saying, ‘don’t ship it back to us,’ — it’s too expensive to operate in this model. They could do something charitable instead. The holidays are usually a time of year for giving, and donating e-commerce mis-ships and mistakes would alleviate return pressure on the supply chain as well.”
Business leaders could make consumers happy by providing return options, do away with issues of extra transportation, labor and storage space costs and make large, sustainable, tax-deductible donations each year. It’s a win-win solution.
Gregory Healy, Senior Vice President, leads the U.S. Supply Chain and Logistics Consulting team. With over 20 years of global manufacturing and supply chain experience as both as a senior executive in the corporate world, as well as owning a supply chain consulting practice and a third party logistics business, Gregory has real world experience that brings a unique perspective to the Colliers team.]]>https://knowledge-leader.colliers.com/gregory-healy/holiday-returns-reverse-logistics-holidays-mean-supply-chain/feed/0The Kit Kat Break: A Global Sensei-tion*https://knowledge-leader.colliers.com/anjee-solanki/the-kit-kat-break-a-global-sensei-tion/
https://knowledge-leader.colliers.com/anjee-solanki/the-kit-kat-break-a-global-sensei-tion/#respondTue, 18 Dec 2018 18:00:32 +0000http://knowledge-leader.colliers.com/?p=7405

*Intentionally misspelled to play off the word Sensei as a teacher, in this case, how Kit Kat can teach other brands how to play globally I recently discovered that the...

*Intentionally misspelled to play off the word Sensei as a teacher, in this case, how Kit Kat can teach other brands how to play globally
I recently discovered that the crispy chocolate wafer known in the U.S. as a Kit Kat bar has an entirely different persona in Tokyo. The chocolate wafer known for its trendsetting taste innovations features over 350 flavor combinations from Maccha Green Tea to Cherry Blossom, Wasabi to Apple Vinegar, as temptations for the discerning Japanese palate. So it should come to no surprise that the Kit Kat bar has earned its spot as the top-selling confection in Japan.
A global household brand with a catchy jingle the Kit Kat ranks as the world’s best chocolate bar and has consistently held a top spot as an American Halloween treat. So how did a four finger wafer make its way from an enterprising chocolatier in York to one of Nestlé’s premier product lines? By strategically positioning itself for globalization way before anyone knew what that even meant.

The Chocolate Timeline

London chocolatier Rowntree founded the chocolate crisp in 1935, the close of the world wars inspired a rebrand and soon after, the Kit Kat began to circumnavigate the world, starting with Australia, New Zealand, South Africa and Canada.
In the early 1970s, Kit Kat launched in the U.S. under a Hershey Corp. license and the real golden ticket came from its partnership with confectionery Fujiya Ltd as it rolled out in Japan. Nestlé purchased Rowntree in 1988 and has maintained the Kit Kat brand ever since, including its continued global expansion most recently into Central and Eastern Europe as well as South America.

Konnichi Wa Kit Kat

Entering the Japanese market proved most fortuitous, thanks in part to the candy’s branding identity. Kitto katsu, the Japanese translation for Kit Kat is an omen of good luck and solidified the candy’s future as a favorite gift item among school children and adults alike.
Kit Kat production took off in the early days of the millennium when innovators at Nestlé Japan began experimenting with flavor combinations and designer packaging to attract more consumers. The flavor explosion has contributed to a 50% increase in sales for the confection and with two Nestlé-owned factories based in Japan, one of which offers guided tours for Kit Kat enthusiasts, that percentage will inevitably surge.
Hershey’s equally invested, convinced that the four finger wafer was poised to become the "next $1 billion global brand," they recently backed a $60 million expansion of its plant in Hazelton, Pennsylvania solely dedicated to producing 400,000 Kit Kats per day.
And it’s not just the licensees who are on board, chocolatiers, chefs and even Nestlé itself are thinking beyond the chocolate box to monetize on Kit Kat’s popularity:

Just in time for the holidays, Nestlé launched KitKat Senses to corner the ‘posh’ luxury sweets market with a retro hipster advert.

KitKat Chocolatory unleashed pop-up appearances in London, Toronto, Melbourne and Ginza bringing a palate of flavors for fans to taste and test out new configurations with the opportunity to design a custom bar.

Next up, sake pairings. The latest Kit Kat release includes a sampling of sake and chocolate, a collaboration between Japanese soccer star Hidetoshi Nakata and Wakayama-based sake maker, Heiwa Shuzou, on a variation of plum wine.

Valentine’s Day, Kit Kat collaborated with Barry Callebaut on the debut of Ruby chocolate, a cocoa bean which features a fresh berry-fruity taste and characteristic pink color.

The customer journey continues to be critical in driving retailer sales. Brands can learn from Nestlé’s understanding of its customers point of view of their product. To make a significant difference, Nestlé has created various heightened touch-points to optimize the experience, including introducing cultural diversity into the equation, as we can see from their success in Japan.
Nestlé carries the torch for brand value with its star product, as the Kit Kat continues to play an organically yet crucial role entertaining and delighting its consumer base worldwide. Share your favorite KitKat flavor, tweet me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>

*Intentionally misspelled to play off the word Sensei as a teacher, in this case, how Kit Kat can teach other brands how to play globally I recently discovered that the...

*Intentionally misspelled to play off the word Sensei as a teacher, in this case, how Kit Kat can teach other brands how to play globally
I recently discovered that the crispy chocolate wafer known in the U.S. as a Kit Kat bar has an entirely different persona in Tokyo. The chocolate wafer known for its trendsetting taste innovations features over 350 flavor combinations from Maccha Green Tea to Cherry Blossom, Wasabi to Apple Vinegar, as temptations for the discerning Japanese palate. So it should come to no surprise that the Kit Kat bar has earned its spot as the top-selling confection in Japan.
A global household brand with a catchy jingle the Kit Kat ranks as the world’s best chocolate bar and has consistently held a top spot as an American Halloween treat. So how did a four finger wafer make its way from an enterprising chocolatier in York to one of Nestlé’s premier product lines? By strategically positioning itself for globalization way before anyone knew what that even meant.

The Chocolate Timeline

London chocolatier Rowntree founded the chocolate crisp in 1935, the close of the world wars inspired a rebrand and soon after, the Kit Kat began to circumnavigate the world, starting with Australia, New Zealand, South Africa and Canada.
In the early 1970s, Kit Kat launched in the U.S. under a Hershey Corp. license and the real golden ticket came from its partnership with confectionery Fujiya Ltd as it rolled out in Japan. Nestlé purchased Rowntree in 1988 and has maintained the Kit Kat brand ever since, including its continued global expansion most recently into Central and Eastern Europe as well as South America.

Konnichi Wa Kit Kat

Entering the Japanese market proved most fortuitous, thanks in part to the candy’s branding identity. Kitto katsu, the Japanese translation for Kit Kat is an omen of good luck and solidified the candy’s future as a favorite gift item among school children and adults alike.
Kit Kat production took off in the early days of the millennium when innovators at Nestlé Japan began experimenting with flavor combinations and designer packaging to attract more consumers. The flavor explosion has contributed to a 50% increase in sales for the confection and with two Nestlé-owned factories based in Japan, one of which offers guided tours for Kit Kat enthusiasts, that percentage will inevitably surge.
Hershey’s equally invested, convinced that the four finger wafer was poised to become the "next $1 billion global brand," they recently backed a $60 million expansion of its plant in Hazelton, Pennsylvania solely dedicated to producing 400,000 Kit Kats per day.
And it’s not just the licensees who are on board, chocolatiers, chefs and even Nestlé itself are thinking beyond the chocolate box to monetize on Kit Kat’s popularity:

Just in time for the holidays, Nestlé launched KitKat Senses to corner the ‘posh’ luxury sweets market with a retro hipster advert.

KitKat Chocolatory unleashed pop-up appearances in London, Toronto, Melbourne and Ginza bringing a palate of flavors for fans to taste and test out new configurations with the opportunity to design a custom bar.

Next up, sake pairings. The latest Kit Kat release includes a sampling of sake and chocolate, a collaboration between Japanese soccer star Hidetoshi Nakata and Wakayama-based sake maker, Heiwa Shuzou, on a variation of plum wine.

Valentine’s Day, Kit Kat collaborated with Barry Callebaut on the debut of Ruby chocolate, a cocoa bean which features a fresh berry-fruity taste and characteristic pink color.

The customer journey continues to be critical in driving retailer sales. Brands can learn from Nestlé’s understanding of its customers point of view of their product. To make a significant difference, Nestlé has created various heightened touch-points to optimize the experience, including introducing cultural diversity into the equation, as we can see from their success in Japan.
Nestlé carries the torch for brand value with its star product, as the Kit Kat continues to play an organically yet crucial role entertaining and delighting its consumer base worldwide. Share your favorite KitKat flavor, tweet me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>https://knowledge-leader.colliers.com/anjee-solanki/the-kit-kat-break-a-global-sensei-tion/feed/0The Changing Face of America’s Mallshttps://knowledge-leader.colliers.com/editor/changing-face-americas-malls/
https://knowledge-leader.colliers.com/editor/changing-face-americas-malls/#respondTue, 18 Dec 2018 17:30:07 +0000http://knowledge-leader.colliers.com/?p=7387

There is a growing perception that America’s malls are dying…but are they? In 2017, Credit Suisse predicted that 20% to 25% of malls, equating to roughly 220-275 properties, would close...

There is a growing perception that America’s malls are dying…but are they? In 2017, Credit Suisse predicted that 20% to 25% of malls, equating to roughly 220-275 properties, would close over the next five years. Additionally, the popularity of e-commerce has grown steadily for the past two decades, creating a new, more convenient way for the average American to shop. In 2000, e-commerce made up less than 1% of total retail sales. By Q1 2018, that percentage had risen to nearly 10%.
While a multitude of malls throughout the country have shuttered over the past decade and this trend is expected to continue, that doesn’t necessarily mean that the functionality of these buildings has ceased to exist. Malls, or the sites on which they are located, are being converted into entirely new uses: distribution centers, multifamily properties and even schools.
Perhaps mall space isn’t dying — it’s just evolving.

Did E-commerce Kill Malls?

First, it’s important to address the common perception that malls are dying solely because of the rise of e-commerce. Yes, the online shopping industry has certainly evolved what traditional, brick-and-mortar shopping looks like in America, but consider that the U.S. has the largest amount of retail space per capita in the world. In 2017, the U.S. had 23.5 square feet of retail space per person, nearly 50% more than Canada, who was the second largest on the list.
Andrew Nelson, Colliers Chief Economist, and Anjee Solanki, Colliers National Director, Retail Services have extensively explored the rise and decline of malls in America, and why retailers are in distress. “Shopping malls became popular as they provided an opportunity for national retailers to reach suburban consumers closer to where they lived. These sprawling real estate ventures flourished with well-established retailers as well as regional chains, serving as a draw, “anchoring” the malls and driving foot traffic and business to fellow retail tenants. This retail development formula held steady for more than half a century. But as malls multiplied and expanded, their tenant leasing strategies became murky — leading to one of the causes underlying the challenges facing so many American malls today: oversupply of retail space.”

The New Distribution Centers

Obsolete mall sites across the country are being converted into distribution centers. Think about the closest mall to you—it’s probably near or next to an interstate or major route, in close proximity to a population-dense area and is situated on a large parcel of land. All of these factors are also highly desirable for a different kind of space entirely: distribution centers.
Amazon is taking full advantage of these logistical goldmines. In two Cleveland, Ohio suburbs, North Randall and Euclid, the e-commerce giant has repurposed former mall properties into fulfillment centers, the latter of which is set to open in early 2019. Both centers are projected to bring a total of 3,000 jobs to the area. It’s somewhat ironic that the rise of e-commerce and a factor in the decline of malls, is now absorbing dead mall space and reviving employment in the process.
Former mall property is especially attractive for tenants like Amazon for another reason. E-commerce operations tend to have higher employee counts — two to three times more than traditional warehousing. This means that an e-commerce tenant looking for a distribution center is going to need greater parking — something that many traditional industrial properties lack. However, malls have abundant parking, which is an attractive feature.
While there are certainly opportunities to convert mall space into distribution centers, it’s important to note that this won’t work in every market and comes at a cost. Retail space is often the most expensive space in a market while warehouse space is among the least, especially when it comes to major markets.

Turning Malls into Communities

Distribution centers aren’t the only uses for a vacant mall property. In a Rochester, NY suburb, the Medley Centre was once a thriving mall where Sears was an anchor tenant. Now answering to the need for an aging population, the former Sears space was just recently approved for a 168-unit senior housing development. In another instance, the former Grand Avenue Mall in Milwaukee, WI, is being repurposed into a high-end apartment complex that includes retail, hotel and office space. And, Northwest of Chicago in Northbrook, IL, the Northbrook Court Mall is getting a major makeover as an open-air plaza with 500,000 square feet of luxury multifamily space in what used to be Macy’s. The project will also house a high-end grocery store, capitalizing on the live-work-play requirements occurring across the country.

From Malls to Schools and More

Some conversions of old malls into new uses are less predictable. In Concord, NH, Capital City Public Charter School started their inaugural school year on September 4 in a space that was once a department store at the Steeplegate Mall. Upon its opening, the school’s founder emphasized the uniqueness of the space and its alignment to the innovative culture of the school.
Going the entertainment route, developers in Virginia have recently announced their serious interest in utilizing the vacant Bristol Mall in Bristol, VA, as a casino, pending changes in the state’s legislation that will allow casino gaming. The property is a 540,000-square-foot former mall, and the casino would plan to take over 100,000 square feet of this space.

Have Malls Actually Come Full Circle?

It’s evident that commercial real estate is becoming increasingly more fluid than in the past. For decades, the mall was where American families went to congregate and get everything done: from haircuts to dining and clothes to Christmas shopping. While Americans still purchase the majority of goods and services in brick-and-mortar locations and probably always will, many malls no longer exist as the dominant shopping meccas they once were. The irony is that some of these obsolete malls will continue to play a role in the daily lives of American consumers — just in a completely different capacity.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

There is a growing perception that America’s malls are dying…but are they? In 2017, Credit Suisse predicted that 20% to 25% of malls, equating to roughly 220-275 properties, would close...

There is a growing perception that America’s malls are dying…but are they? In 2017, Credit Suisse predicted that 20% to 25% of malls, equating to roughly 220-275 properties, would close over the next five years. Additionally, the popularity of e-commerce has grown steadily for the past two decades, creating a new, more convenient way for the average American to shop. In 2000, e-commerce made up less than 1% of total retail sales. By Q1 2018, that percentage had risen to nearly 10%.
While a multitude of malls throughout the country have shuttered over the past decade and this trend is expected to continue, that doesn’t necessarily mean that the functionality of these buildings has ceased to exist. Malls, or the sites on which they are located, are being converted into entirely new uses: distribution centers, multifamily properties and even schools.
Perhaps mall space isn’t dying — it’s just evolving.

Did E-commerce Kill Malls?

First, it’s important to address the common perception that malls are dying solely because of the rise of e-commerce. Yes, the online shopping industry has certainly evolved what traditional, brick-and-mortar shopping looks like in America, but consider that the U.S. has the largest amount of retail space per capita in the world. In 2017, the U.S. had 23.5 square feet of retail space per person, nearly 50% more than Canada, who was the second largest on the list.
Andrew Nelson, Colliers Chief Economist, and Anjee Solanki, Colliers National Director, Retail Services have extensively explored the rise and decline of malls in America, and why retailers are in distress. “Shopping malls became popular as they provided an opportunity for national retailers to reach suburban consumers closer to where they lived. These sprawling real estate ventures flourished with well-established retailers as well as regional chains, serving as a draw, “anchoring” the malls and driving foot traffic and business to fellow retail tenants. This retail development formula held steady for more than half a century. But as malls multiplied and expanded, their tenant leasing strategies became murky — leading to one of the causes underlying the challenges facing so many American malls today: oversupply of retail space.”

The New Distribution Centers

Obsolete mall sites across the country are being converted into distribution centers. Think about the closest mall to you—it’s probably near or next to an interstate or major route, in close proximity to a population-dense area and is situated on a large parcel of land. All of these factors are also highly desirable for a different kind of space entirely: distribution centers.
Amazon is taking full advantage of these logistical goldmines. In two Cleveland, Ohio suburbs, North Randall and Euclid, the e-commerce giant has repurposed former mall properties into fulfillment centers, the latter of which is set to open in early 2019. Both centers are projected to bring a total of 3,000 jobs to the area. It’s somewhat ironic that the rise of e-commerce and a factor in the decline of malls, is now absorbing dead mall space and reviving employment in the process.
Former mall property is especially attractive for tenants like Amazon for another reason. E-commerce operations tend to have higher employee counts — two to three times more than traditional warehousing. This means that an e-commerce tenant looking for a distribution center is going to need greater parking — something that many traditional industrial properties lack. However, malls have abundant parking, which is an attractive feature.
While there are certainly opportunities to convert mall space into distribution centers, it’s important to note that this won’t work in every market and comes at a cost. Retail space is often the most expensive space in a market while warehouse space is among the least, especially when it comes to major markets.

Turning Malls into Communities

Distribution centers aren’t the only uses for a vacant mall property. In a Rochester, NY suburb, the Medley Centre was once a thriving mall where Sears was an anchor tenant. Now answering to the need for an aging population, the former Sears space was just recently approved for a 168-unit senior housing development. In another instance, the former Grand Avenue Mall in Milwaukee, WI, is being repurposed into a high-end apartment complex that includes retail, hotel and office space. And, Northwest of Chicago in Northbrook, IL, the Northbrook Court Mall is getting a major makeover as an open-air plaza with 500,000 square feet of luxury multifamily space in what used to be Macy’s. The project will also house a high-end grocery store, capitalizing on the live-work-play requirements occurring across the country.

From Malls to Schools and More

Some conversions of old malls into new uses are less predictable. In Concord, NH, Capital City Public Charter School started their inaugural school year on September 4 in a space that was once a department store at the Steeplegate Mall. Upon its opening, the school’s founder emphasized the uniqueness of the space and its alignment to the innovative culture of the school.
Going the entertainment route, developers in Virginia have recently announced their serious interest in utilizing the vacant Bristol Mall in Bristol, VA, as a casino, pending changes in the state’s legislation that will allow casino gaming. The property is a 540,000-square-foot former mall, and the casino would plan to take over 100,000 square feet of this space.

Have Malls Actually Come Full Circle?

It’s evident that commercial real estate is becoming increasingly more fluid than in the past. For decades, the mall was where American families went to congregate and get everything done: from haircuts to dining and clothes to Christmas shopping. While Americans still purchase the majority of goods and services in brick-and-mortar locations and probably always will, many malls no longer exist as the dominant shopping meccas they once were. The irony is that some of these obsolete malls will continue to play a role in the daily lives of American consumers — just in a completely different capacity.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/changing-face-americas-malls/feed/0The Long Economic Expansion Looks to Slow – Property Markets Will Followhttps://knowledge-leader.colliers.com/andrew-nelson/the-long-economic-expansion-looks-to-slow/
https://knowledge-leader.colliers.com/andrew-nelson/the-long-economic-expansion-looks-to-slow/#respondMon, 17 Dec 2018 17:45:11 +0000http://knowledge-leader.colliers.com/?p=7411

In our State of the U.S. Market and 2019 Outlook, Colliers outlines current economic and property market conditions and provides insight into what we can expect in the coming year...

In our State of the U.S. Market and 2019 Outlook, Colliers outlines current economic and property market conditions and provides insight into what we can expect in the coming year and beyond.
We take stock of key economic and market indicators, including the changing global backdrop. This analysis was prepared by Colliers’ national research team, with input from Colliers’ top professionals throughout the U.S. practice.

The industrial sector will continue to be the top-performing property type, and the sector most favored by investors. Much of its gains have come at the expense of the beleaguered retailsector, where the shakeout is still far from over, despite recent successes in omnichannel retailing.

The multifamily sector’s strong demand shook off the supply challenges of the past couple of years. The sector will perform relatively well during a downturn due to structural changes and cyclical dynamics favoring renting over homebuying.

Supply and demand dynamics in the office sector have remained broadly balanced. This notoriously cyclical sector should perform relatively well in the next downturn, as construction has been relatively moderate and the new coworking segment may provide a downside buffer.

Though property markets peaked for this cycle in 2015, leasing and sales transaction activity remain robust and pricing firm. Both may slow sharply in the next two years, along with price appreciation and rent growth.

Tenants and investors alike should adopt more defensive strategies in advance of the slowdown. Tenants will want to seek out flexible terms, while landlords look to shed under-performing assets.

In our State of the U.S. Market and 2019 Outlook, Colliers outlines current economic and property market conditions and provides insight into what we can expect in the coming year...

In our State of the U.S. Market and 2019 Outlook, Colliers outlines current economic and property market conditions and provides insight into what we can expect in the coming year and beyond.
We take stock of key economic and market indicators, including the changing global backdrop. This analysis was prepared by Colliers’ national research team, with input from Colliers’ top professionals throughout the U.S. practice.

The industrial sector will continue to be the top-performing property type, and the sector most favored by investors. Much of its gains have come at the expense of the beleaguered retailsector, where the shakeout is still far from over, despite recent successes in omnichannel retailing.

The multifamily sector’s strong demand shook off the supply challenges of the past couple of years. The sector will perform relatively well during a downturn due to structural changes and cyclical dynamics favoring renting over homebuying.

Supply and demand dynamics in the office sector have remained broadly balanced. This notoriously cyclical sector should perform relatively well in the next downturn, as construction has been relatively moderate and the new coworking segment may provide a downside buffer.

Though property markets peaked for this cycle in 2015, leasing and sales transaction activity remain robust and pricing firm. Both may slow sharply in the next two years, along with price appreciation and rent growth.

Tenants and investors alike should adopt more defensive strategies in advance of the slowdown. Tenants will want to seek out flexible terms, while landlords look to shed under-performing assets.

For more details, download the State of the U.S. Market and 2018 Outlook.Andrew J. Nelson is Chief Economist forColliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.]]>https://knowledge-leader.colliers.com/andrew-nelson/the-long-economic-expansion-looks-to-slow/feed/0Cross-Border Investments: It’s Not just for Major Marketshttps://knowledge-leader.colliers.com/editor/cross-border-investments-not-just-major-markets/
https://knowledge-leader.colliers.com/editor/cross-border-investments-not-just-major-markets/#respondThu, 13 Dec 2018 17:30:23 +0000http://knowledge-leader.colliers.com/?p=7398

Real estate has long played an integral role in global investors’ portfolios, and there is a shift occurring in markets where the investment capital is flowing. For the past two...

Real estate has long played an integral role in global investors’ portfolios, and there is a shift occurring in markets where the investment capital is flowing. For the past two decades, when foreign investments surged from places like China, Canada and Europe, there has been very little change in the markets where these investments were placed. Los Angeles, New York City and Washington, D.C. have historically been the targets of foreign investors, but recently interest in secondary markets has skyrocketed.

Changes in Core Markets

Over the last several years, the makeup of foreign investments in core markets like New York City has shifted. Historically, the majority of capital flowed into Class-A trophy office deals. Currently, markets are experiencing increased activity, albeit at smaller transaction sizes. So, what does this shift mean? David Amsterdam, President of Investments, Leasing and Colliers’ U.S. Eastern Region, states, “this tells us that foreign investors are looking for opportunities in different market segments. They can’t find an appropriate risk-adjusted return on trophy office deals, so we are seeing a willingness to invest outside their traditional investment spectrum, to capture yield. Sometimes this means investing in different asset types as well as classes and sometimes this means investing outside of these core cities entirely and instead looking to secondary markets.”

Valley of the Sun and Investment?

Phoenix, AZ is an attractive market for a variety of reasons beyond the 300+ days of sunshine a year. Home to Arizona State University — with more than 4,000 graduates a year in their engineering and biotech programs — the Phoenix labor pool is one of the most skilled in the nation. It’s no wonder there are more than 80 tech companies along the 101-loop alone. Phoenix, with its population of more than 1.5 million people, is the most populous capital city in the United States (4th largest overall), posting the second-highest population growth in 2017.
People are flocking to this sunny mecca, along with solid cross-border investments. While the #1 metro for cross-border investment was New York with $5.5 billion in the first half of 2018, Phoenix came in at #6 with $1 billion, only behind the other primary U.S. investment markets of Los Angeles, Washington, D.C., San Francisco and Chicago.
What’s even more remarkable is the number of single transaction deals that occurred in Phoenix for the first half of 2018. While monitoring all the capital flowing in is a strong indicator of foreign interest, much of that can be attributable to a portfolio, where the investor isn’t singling out a specific market. Yet, in 2018 there were 80 transactions in Phoenix by foreign investors.
What is the driving force for investment in the market?
In the case of Phoenix, it’s multifamily driving the market. Multifamily investments provide foreign investors a sense of security since the financing options are non-recourse to the investors and there is overall demand for housing. Foreign investors like the security of the U.S. economy compared to other countries and the tangibility of real estate as an investment. Phoenix is attractive compared to other cities in the U.S. due to both employment and population growth. The Phoenix-Mesa-Scottsdale market has posted growth rates well above its long-term average over the past three years, according to the RealPage Q3 2018 Apartment Market Report. In turn, this makes investment in multifamily real estate one which is accretive and will see an increase in capital values.

Slow and Steady Wins the Race: Minneapolis

While Phoenix is a high-growth city attractive to foreign investors, another city is also gaining quite a bit of traction in terms of foreign capital: Minneapolis, MN. Colin Ryan, Senior Vice President of Investment Properties at Colliers International says, “Minneapolis may not be as high-profile as its larger cousin, Chicago, but the diversity of businesses provides an ideal hedge against a slowdown in any one industry. This, coupled with an affluent and growing population base triangulate to the exact investment thesis foreign investors are looking to capitalize on.”
From food to finance and healthcare to retailers, some of the highest quality brand name companies in the world call Minneapolis and its twin city next door, St. Paul, home: Target, United Healthcare, Best Buy and General Mills are just a few. Of all the Fortune 500 companies in 2018, 18 are headquartered in the Minneapolis/St. Paul metro area, amongst the highest Fortune 500’s per capita. Beyond public companies, the Twin Cities are home to Cargill, the largest privately-owned company in the U.S. with 150,000 employees and $110 billion in revenue.
Most foreign investors already own assets in Chicago, New York and Los Angeles and are now looking to expand their investment targets to capture the upside embedded in key secondary markets like Minneapolis. With an average cap rate of 6%, the yield premium is +100 basis points greater than Chicago and nearly 200 basis points greater than NYC, D.C. and San Francisco. The market has grown significantly over the past several years, at #16 for CB investment in 1H18 compared to its #30 spot in 1H16. With a premium yield and a strong employment base from multiple industries, Minneapolis becomes a logical and attractive market for inbound capital.

Risk Diversification is Changing Investing

While foreign investors will seek iconic, trophy Class A-office buildings in major markets like New York, Chicago and Los Angeles, diversification of risk is changing the nature of investing. With cap rate compression and tepid fundamental growth in some primary markets, investors are capitalizing on higher growth markets that provide premium yields with a safe and secure economic base like Phoenix and Minneapolis. Other secondary markets are poised to benefit from this investment strategy, and it’s only a matter of time before additional markets experience this foreign capital investment growth.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Real estate has long played an integral role in global investors’ portfolios, and there is a shift occurring in markets where the investment capital is flowing. For the past two...

Real estate has long played an integral role in global investors’ portfolios, and there is a shift occurring in markets where the investment capital is flowing. For the past two decades, when foreign investments surged from places like China, Canada and Europe, there has been very little change in the markets where these investments were placed. Los Angeles, New York City and Washington, D.C. have historically been the targets of foreign investors, but recently interest in secondary markets has skyrocketed.

Changes in Core Markets

Over the last several years, the makeup of foreign investments in core markets like New York City has shifted. Historically, the majority of capital flowed into Class-A trophy office deals. Currently, markets are experiencing increased activity, albeit at smaller transaction sizes. So, what does this shift mean? David Amsterdam, President of Investments, Leasing and Colliers’ U.S. Eastern Region, states, “this tells us that foreign investors are looking for opportunities in different market segments. They can’t find an appropriate risk-adjusted return on trophy office deals, so we are seeing a willingness to invest outside their traditional investment spectrum, to capture yield. Sometimes this means investing in different asset types as well as classes and sometimes this means investing outside of these core cities entirely and instead looking to secondary markets.”

Valley of the Sun and Investment?

Phoenix, AZ is an attractive market for a variety of reasons beyond the 300+ days of sunshine a year. Home to Arizona State University — with more than 4,000 graduates a year in their engineering and biotech programs — the Phoenix labor pool is one of the most skilled in the nation. It’s no wonder there are more than 80 tech companies along the 101-loop alone. Phoenix, with its population of more than 1.5 million people, is the most populous capital city in the United States (4th largest overall), posting the second-highest population growth in 2017.
People are flocking to this sunny mecca, along with solid cross-border investments. While the #1 metro for cross-border investment was New York with $5.5 billion in the first half of 2018, Phoenix came in at #6 with $1 billion, only behind the other primary U.S. investment markets of Los Angeles, Washington, D.C., San Francisco and Chicago.
What’s even more remarkable is the number of single transaction deals that occurred in Phoenix for the first half of 2018. While monitoring all the capital flowing in is a strong indicator of foreign interest, much of that can be attributable to a portfolio, where the investor isn’t singling out a specific market. Yet, in 2018 there were 80 transactions in Phoenix by foreign investors.
What is the driving force for investment in the market?
In the case of Phoenix, it’s multifamily driving the market. Multifamily investments provide foreign investors a sense of security since the financing options are non-recourse to the investors and there is overall demand for housing. Foreign investors like the security of the U.S. economy compared to other countries and the tangibility of real estate as an investment. Phoenix is attractive compared to other cities in the U.S. due to both employment and population growth. The Phoenix-Mesa-Scottsdale market has posted growth rates well above its long-term average over the past three years, according to the RealPage Q3 2018 Apartment Market Report. In turn, this makes investment in multifamily real estate one which is accretive and will see an increase in capital values.

Slow and Steady Wins the Race: Minneapolis

While Phoenix is a high-growth city attractive to foreign investors, another city is also gaining quite a bit of traction in terms of foreign capital: Minneapolis, MN. Colin Ryan, Senior Vice President of Investment Properties at Colliers International says, “Minneapolis may not be as high-profile as its larger cousin, Chicago, but the diversity of businesses provides an ideal hedge against a slowdown in any one industry. This, coupled with an affluent and growing population base triangulate to the exact investment thesis foreign investors are looking to capitalize on.”
From food to finance and healthcare to retailers, some of the highest quality brand name companies in the world call Minneapolis and its twin city next door, St. Paul, home: Target, United Healthcare, Best Buy and General Mills are just a few. Of all the Fortune 500 companies in 2018, 18 are headquartered in the Minneapolis/St. Paul metro area, amongst the highest Fortune 500’s per capita. Beyond public companies, the Twin Cities are home to Cargill, the largest privately-owned company in the U.S. with 150,000 employees and $110 billion in revenue.
Most foreign investors already own assets in Chicago, New York and Los Angeles and are now looking to expand their investment targets to capture the upside embedded in key secondary markets like Minneapolis. With an average cap rate of 6%, the yield premium is +100 basis points greater than Chicago and nearly 200 basis points greater than NYC, D.C. and San Francisco. The market has grown significantly over the past several years, at #16 for CB investment in 1H18 compared to its #30 spot in 1H16. With a premium yield and a strong employment base from multiple industries, Minneapolis becomes a logical and attractive market for inbound capital.

Risk Diversification is Changing Investing

While foreign investors will seek iconic, trophy Class A-office buildings in major markets like New York, Chicago and Los Angeles, diversification of risk is changing the nature of investing. With cap rate compression and tepid fundamental growth in some primary markets, investors are capitalizing on higher growth markets that provide premium yields with a safe and secure economic base like Phoenix and Minneapolis. Other secondary markets are poised to benefit from this investment strategy, and it’s only a matter of time before additional markets experience this foreign capital investment growth.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/cross-border-investments-not-just-major-markets/feed/0Can Augmented and Virtual Reality Really Change the Commercial Real Estate Landscape?https://knowledge-leader.colliers.com/editor/can-augmented-virtual-reality-really-change-commercial-real-estate-landscape/
https://knowledge-leader.colliers.com/editor/can-augmented-virtual-reality-really-change-commercial-real-estate-landscape/#respondWed, 12 Dec 2018 17:30:26 +0000http://knowledge-leader.colliers.com/?p=7386

Technology is continually reshaping our lives. Today, we can pick up our smartphones to effortlessly order an Uber instead of standing on the sidewalk to hail a cab. Bills can...

Technology is continually reshaping our lives. Today, we can pick up our smartphones to effortlessly order an Uber instead of standing on the sidewalk to hail a cab. Bills can be paid through banking apps, dinner ordered through GrubHub, and your coffee table sold within minutes on OfferUp, all with a couple swipes on your mobile phone. It’s convenient, fast, and in many cases, instant. Our lives are undoubtedly intertwined with technology, especially through the smartphones most of us own. But do you think to use your smartphone to visualize a sign on a building or tour a vacant space?
The application of technology and augmented reality (AR) – the concept of adding virtual technology to real-world experiences – is exploding. While AR is similar to virtual reality (VR), they differ in the sense that AR uses technology to supplement a real-world experience, whereas the VR experience is entirely digital.
Experts have predicted there will be 3.5 billion AR-enabled devices by 2022, and the industry will be worth as much as $85 billion. “As smart glasses proliferate, we can expect the field to grow by leaps and bounds” says Karen Whitt, President of Colliers International Investment Services and Real Estate Management Services, US, “and the level of attachment we have to our personal devices to grow proportionately.”
Aside from being futuristically intriguing, AR and VR arguably have the potential to truly change how business is done in many industries, including the commercial real estate (CRE) world. Both technologies have generated great momentum in the retail sector, but what does it look like for the office or industrial markets, and will it really be adopted?

Changing Realities – Not Just for Retail

Retail establishments across the globe have successfully integrated AR into their retail operations. Holition, a creative services agency specializing in AR, made this integration possible for a variety of big names in retail such as Lacoste, Uniqlo, VANS and De Beers. For VANS, Holition created an AR mirror, allowing customers to virtually try on shoes — simply by standing in front of the mirror in the store and using an iPad to select color and style. After a few swipes on the device, the shoes virtually appear on your feet in the mirror. This innovative technology allows retailers to be creative, enhancing in-store experiences for consumers. Better yet, many consumers say they would pay more for a product if they get to experience it through AR – 40% to be exact.
So what kind of capacity do the office or industrial CRE sectors have in utilizing AR and VR in ways that follow the success of retail? Helping occupiers to see and feel a future experience is critical for redevelopments or yet-to-be-imagined space, accelerating speed to market and generating potential cost savings. And creating an experience that generates a connection with and in an existing space helps an occupier see the potential for their business in almost any real estate sector. However, the time and money saved by utilizing AR and VR might not outweigh the cost and potential risk of the service.
In theory, both AR and VR technologies can be deployed for everything from planning and the construction process, through touring a space with a potential tenant. Progressive AR firms, like Mandt Media, specialize in AR experiences specific to business and CRE. From an AR experience where users imagine a redevelopment while standing before an existing site, to assisting a potential occupier to envision their exterior signage on an existing space, AR creates a futuristic experience in a real-world environment.
While more established in a CRE environment, VR experiences are continually evolving. Igloo Vision, a developer of 360 immersive and experiential VR environments, creates projection domes for a fully-inclusive experience, placing viewers squarely in the center of the virtual environment. And, CRE VR specialist BlockVue creates environments exclusively for CRE leasing, which increase prospect engagement, visualization of project environments and virtual space planning.

The Benefits

Time is just as valuable as money, and these technologies have implications for both when it comes to maximizing company revenues. Occupiers looking for space need efficiency in their space and site selection efforts. For CRE firms, providing clients the ability to see a development in its planned location, even before construction has broken ground, could accelerate the planning and development process. In a VR application, clients can navigate through a planned development and their potential space prior to construction and ground-breaking.
When touring a space, AR and VR technologies show potential occupiers’ virtual space, offering a more personalized view of the space as a finished, customized product that incorporates their layout and finish preferences. Not only do these technology applications reduce time spent on selecting an office space that is right for an occupier, it allows for a more targeted approach to serving occupiers’ needs.
Both AR and VR scenarios offer developers and property owners speed to market – saving them both time and money in the development process while serving the needs of occupiers quickly and efficiently.

The Challenges

While AR and VR are certainly appealing tools in CRE, there are challenges to note as well. The technology behind both is continually evolving, with tech companies testing, refining and developing the platforms and features. Depending on the complexity of the service, vendors can charge anywhere from several thousand dollars to upward of $50,000.
Additionally, a challenge with the AR applications on existing assets is the potential clash with property rights. Pokémon Go, the AR game that went viral in the summer of 2016, involved GPS coordinated “PokéStops”, or set locations where players can earn points. The Holocaust Museum in Washington, D.C. happened to have several, and asked guests to stop playing the game while visiting the museum. The maker of the game hadn’t physically placed or altered anything on the property, but definitely opened questions regarding property rights and free speech. Even if AR gained greater popularity, would challenges like the aforementioned slow the growth of AR use?

The Full Impact Remains to Be Seen

According to William Granruth, Founder and CEO of BlockVue, “While we are seeing more widespread applications of VR technology in CRE, we still have a way to go for mainstream adoption. We’re currently concentrating our efforts on creating scalability and cost efficiencies for CRE-focused VR applications. Creating greater accessibility to the benefits VR and AR technologies promise is key to democratizing the technology and widespread adoption,” added Granruth.
Until such scalability — as well as cost reduction — is attainted in AR and VR, questions remain on whether the benefits outweigh the costs for widespread adoption.
It’s difficult to project exactly how large of a role AR and VR will have in the future of CRE, but we’re already seeing adoption of the technology. As these technologies become more streamlined, it’s likely that the cost of these services will decline, making it more realistic to use in many aspects of CRE — some not even yet conceived.
For now, greater strategic integration of AR and VR technology is anticipated over the next few years. Even today, Colliers Real Estate Management Services has begun including an AR rights management clause in property management agreements to ensure occupiers are covered when the use of AR accelerates. And before long, passing out AR and VR-enabled devices to clients on tour may be the standard in CRE.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Technology is continually reshaping our lives. Today, we can pick up our smartphones to effortlessly order an Uber instead of standing on the sidewalk to hail a cab. Bills can...

Technology is continually reshaping our lives. Today, we can pick up our smartphones to effortlessly order an Uber instead of standing on the sidewalk to hail a cab. Bills can be paid through banking apps, dinner ordered through GrubHub, and your coffee table sold within minutes on OfferUp, all with a couple swipes on your mobile phone. It’s convenient, fast, and in many cases, instant. Our lives are undoubtedly intertwined with technology, especially through the smartphones most of us own. But do you think to use your smartphone to visualize a sign on a building or tour a vacant space?
The application of technology and augmented reality (AR) – the concept of adding virtual technology to real-world experiences – is exploding. While AR is similar to virtual reality (VR), they differ in the sense that AR uses technology to supplement a real-world experience, whereas the VR experience is entirely digital.
Experts have predicted there will be 3.5 billion AR-enabled devices by 2022, and the industry will be worth as much as $85 billion. “As smart glasses proliferate, we can expect the field to grow by leaps and bounds” says Karen Whitt, President of Colliers International Investment Services and Real Estate Management Services, US, “and the level of attachment we have to our personal devices to grow proportionately.”
Aside from being futuristically intriguing, AR and VR arguably have the potential to truly change how business is done in many industries, including the commercial real estate (CRE) world. Both technologies have generated great momentum in the retail sector, but what does it look like for the office or industrial markets, and will it really be adopted?

Changing Realities – Not Just for Retail

Retail establishments across the globe have successfully integrated AR into their retail operations. Holition, a creative services agency specializing in AR, made this integration possible for a variety of big names in retail such as Lacoste, Uniqlo, VANS and De Beers. For VANS, Holition created an AR mirror, allowing customers to virtually try on shoes — simply by standing in front of the mirror in the store and using an iPad to select color and style. After a few swipes on the device, the shoes virtually appear on your feet in the mirror. This innovative technology allows retailers to be creative, enhancing in-store experiences for consumers. Better yet, many consumers say they would pay more for a product if they get to experience it through AR – 40% to be exact.
So what kind of capacity do the office or industrial CRE sectors have in utilizing AR and VR in ways that follow the success of retail? Helping occupiers to see and feel a future experience is critical for redevelopments or yet-to-be-imagined space, accelerating speed to market and generating potential cost savings. And creating an experience that generates a connection with and in an existing space helps an occupier see the potential for their business in almost any real estate sector. However, the time and money saved by utilizing AR and VR might not outweigh the cost and potential risk of the service.
In theory, both AR and VR technologies can be deployed for everything from planning and the construction process, through touring a space with a potential tenant. Progressive AR firms, like Mandt Media, specialize in AR experiences specific to business and CRE. From an AR experience where users imagine a redevelopment while standing before an existing site, to assisting a potential occupier to envision their exterior signage on an existing space, AR creates a futuristic experience in a real-world environment.
While more established in a CRE environment, VR experiences are continually evolving. Igloo Vision, a developer of 360 immersive and experiential VR environments, creates projection domes for a fully-inclusive experience, placing viewers squarely in the center of the virtual environment. And, CRE VR specialist BlockVue creates environments exclusively for CRE leasing, which increase prospect engagement, visualization of project environments and virtual space planning.

The Benefits

Time is just as valuable as money, and these technologies have implications for both when it comes to maximizing company revenues. Occupiers looking for space need efficiency in their space and site selection efforts. For CRE firms, providing clients the ability to see a development in its planned location, even before construction has broken ground, could accelerate the planning and development process. In a VR application, clients can navigate through a planned development and their potential space prior to construction and ground-breaking.
When touring a space, AR and VR technologies show potential occupiers’ virtual space, offering a more personalized view of the space as a finished, customized product that incorporates their layout and finish preferences. Not only do these technology applications reduce time spent on selecting an office space that is right for an occupier, it allows for a more targeted approach to serving occupiers’ needs.
Both AR and VR scenarios offer developers and property owners speed to market – saving them both time and money in the development process while serving the needs of occupiers quickly and efficiently.

The Challenges

While AR and VR are certainly appealing tools in CRE, there are challenges to note as well. The technology behind both is continually evolving, with tech companies testing, refining and developing the platforms and features. Depending on the complexity of the service, vendors can charge anywhere from several thousand dollars to upward of $50,000.
Additionally, a challenge with the AR applications on existing assets is the potential clash with property rights. Pokémon Go, the AR game that went viral in the summer of 2016, involved GPS coordinated “PokéStops”, or set locations where players can earn points. The Holocaust Museum in Washington, D.C. happened to have several, and asked guests to stop playing the game while visiting the museum. The maker of the game hadn’t physically placed or altered anything on the property, but definitely opened questions regarding property rights and free speech. Even if AR gained greater popularity, would challenges like the aforementioned slow the growth of AR use?

The Full Impact Remains to Be Seen

According to William Granruth, Founder and CEO of BlockVue, “While we are seeing more widespread applications of VR technology in CRE, we still have a way to go for mainstream adoption. We’re currently concentrating our efforts on creating scalability and cost efficiencies for CRE-focused VR applications. Creating greater accessibility to the benefits VR and AR technologies promise is key to democratizing the technology and widespread adoption,” added Granruth.
Until such scalability — as well as cost reduction — is attainted in AR and VR, questions remain on whether the benefits outweigh the costs for widespread adoption.
It’s difficult to project exactly how large of a role AR and VR will have in the future of CRE, but we’re already seeing adoption of the technology. As these technologies become more streamlined, it’s likely that the cost of these services will decline, making it more realistic to use in many aspects of CRE — some not even yet conceived.
For now, greater strategic integration of AR and VR technology is anticipated over the next few years. Even today, Colliers Real Estate Management Services has begun including an AR rights management clause in property management agreements to ensure occupiers are covered when the use of AR accelerates. And before long, passing out AR and VR-enabled devices to clients on tour may be the standard in CRE.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/can-augmented-virtual-reality-really-change-commercial-real-estate-landscape/feed/0Your Market Insights Hub | U.S. Office Q3 2018https://knowledge-leader.colliers.com/editor/your-market-insights-hub-us-office-q3-2018/
https://knowledge-leader.colliers.com/editor/your-market-insights-hub-us-office-q3-2018/#respondWed, 12 Dec 2018 14:55:32 +0000http://knowledge-leader.colliers.com/?p=7373

Explore the latest key statistics and Colliers’ outlook for the U.S. office market. Click the data you want to review or scroll. For more office insights, read the Q3 2018...

Explore the latest key statistics and Colliers’ outlook for the U.S. office market. Click the data you want to review or scroll. For more office insights, read the Q3 2018 U.S. Office Market Outlook Report.
[sc name="Office-Insights-Q3-2018"]

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Explore the latest key statistics and Colliers’ outlook for the U.S. office market. Click the data you want to review or scroll. For more office insights, read the Q3 2018...

Explore the latest key statistics and Colliers’ outlook for the U.S. office market. Click the data you want to review or scroll. For more office insights, read the Q3 2018 U.S. Office Market Outlook Report.
[sc name="Office-Insights-Q3-2018"]

Automation is unquestionably changing the many moving parts of commercial real estate (CRE). A notable sector being positively impacted by innovative technology is Real Estate Valuation. While a very specialized...

Automation is unquestionably changing the many moving parts of commercial real estate (CRE). A notable sector being positively impacted by innovative technology is Real Estate Valuation. While a very specialized sector of commercial real estate, valuation relies heavily on technologies to become increasingly efficient and produce quality appraisals in a timely fashion for financial institutional clients. By automating data inputs, appraisers can interpret and analyze information that impacts property value conclusions at ever increasing, market-demanded speeds.
In comparison to other CRE professionals, appraisers execute an exceptionally high volume of assignments monthly and are expected to produce final reports in a short timeframe. This fast turnaround, combined with the high volume, has increased the focus on one-click downloads and automation to increase productivity while maintaining quality and consistency.

Demographics with the Click of a Button

While a relatively standard component, demographics can tell an important story about the immediate market area in a valuation report. Historically, appraisers spent anywhere from 10 to 30 minutes tracking down relevant data to prepare a comprehensive report regarding the market. Colliers Valuation worked to automate the process so that with an address only, the click of a button results in a wide range of demographic information that auto-populates into the report. In under 30 seconds, demographic information within a 1, 3, and 5-mile radius of any given property can be compiled in a clear-cut, easily transferable way. Doug Stafford, Colliers Valuation and Advisory Services’ Director of Business Innovation, indicated this streamlined process “ultimately equates to at least 2,000 work hours saved in a year.” This time can now be better filled with analysis and advising clients instead of basic data entry.

Rapid Mapping

Another integral part of the appraisal process is mapping. In an appraisal report, maps are essential to understand the surrounding market, submarket and competitive properties. Not too long ago, an appraiser would print out a hard copy of a map and place stickers on the spaces where all similar properties were located, along with detailed information for each. The map was then scanned back into the printer. Over the years, this process slowly became more automated, eliminating manual steps and digitalizing certain aspects. Now, it takes just a few seconds to generate a complete competitive property map with the click of a button.

Underwriting in Fewer Steps

As an organization who values service excellence and a client-centric mindset, Colliers looks to not only streamline the process for appraisers, but for our clients as well. Throughout the entirety of an appraisal, most clients need to utilize the data obtained for their own underwriting purposes. Before automation, data shared between appraisers and their clients was an inefficient process at best, with data input happening at many phases on both sides of the process, leading to a greater risk of manual input error as well as more time spent manipulating the data itself. With automation, appraisers can now near-instantly compile all of the raw data obtained and share it directly with the client via system-to-system communication, eliminating all the unnecessary back-and-forth. This seamless data integration allows clients to complete their underwriting processes much quicker, making automation a win-win for appraisers and clients alike.

Will Automation Help to Bring Younger Talent to Valuation?

In today’s climate, innovative technology is a must for attracting new talent to an industry, and crucial to sustaining a healthy and robust workforce. According to Forbes, to attract and retain talent, businesses must adapt to accommodate millennials’ tech-driven approach and stave-off costly turnover. With that said, the appraisal industry does not currently have a large influx of young professionals entering the field, with more than 60% of appraisal professionals over the age of 50. However, with the incorporation of technologies such as the ones outlined above, Colliers Valuation is looking toward the future of the industry and attracting fresh faces in the business. Only time will tell, but it’s likely that adopting new technology will continue to mean positive changes for the valuation side of commercial real estate.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

Automation is unquestionably changing the many moving parts of commercial real estate (CRE). A notable sector being positively impacted by innovative technology is Real Estate Valuation. While a very specialized...

Automation is unquestionably changing the many moving parts of commercial real estate (CRE). A notable sector being positively impacted by innovative technology is Real Estate Valuation. While a very specialized sector of commercial real estate, valuation relies heavily on technologies to become increasingly efficient and produce quality appraisals in a timely fashion for financial institutional clients. By automating data inputs, appraisers can interpret and analyze information that impacts property value conclusions at ever increasing, market-demanded speeds.
In comparison to other CRE professionals, appraisers execute an exceptionally high volume of assignments monthly and are expected to produce final reports in a short timeframe. This fast turnaround, combined with the high volume, has increased the focus on one-click downloads and automation to increase productivity while maintaining quality and consistency.

Demographics with the Click of a Button

While a relatively standard component, demographics can tell an important story about the immediate market area in a valuation report. Historically, appraisers spent anywhere from 10 to 30 minutes tracking down relevant data to prepare a comprehensive report regarding the market. Colliers Valuation worked to automate the process so that with an address only, the click of a button results in a wide range of demographic information that auto-populates into the report. In under 30 seconds, demographic information within a 1, 3, and 5-mile radius of any given property can be compiled in a clear-cut, easily transferable way. Doug Stafford, Colliers Valuation and Advisory Services’ Director of Business Innovation, indicated this streamlined process “ultimately equates to at least 2,000 work hours saved in a year.” This time can now be better filled with analysis and advising clients instead of basic data entry.

Rapid Mapping

Another integral part of the appraisal process is mapping. In an appraisal report, maps are essential to understand the surrounding market, submarket and competitive properties. Not too long ago, an appraiser would print out a hard copy of a map and place stickers on the spaces where all similar properties were located, along with detailed information for each. The map was then scanned back into the printer. Over the years, this process slowly became more automated, eliminating manual steps and digitalizing certain aspects. Now, it takes just a few seconds to generate a complete competitive property map with the click of a button.

Underwriting in Fewer Steps

As an organization who values service excellence and a client-centric mindset, Colliers looks to not only streamline the process for appraisers, but for our clients as well. Throughout the entirety of an appraisal, most clients need to utilize the data obtained for their own underwriting purposes. Before automation, data shared between appraisers and their clients was an inefficient process at best, with data input happening at many phases on both sides of the process, leading to a greater risk of manual input error as well as more time spent manipulating the data itself. With automation, appraisers can now near-instantly compile all of the raw data obtained and share it directly with the client via system-to-system communication, eliminating all the unnecessary back-and-forth. This seamless data integration allows clients to complete their underwriting processes much quicker, making automation a win-win for appraisers and clients alike.

Will Automation Help to Bring Younger Talent to Valuation?

In today’s climate, innovative technology is a must for attracting new talent to an industry, and crucial to sustaining a healthy and robust workforce. According to Forbes, to attract and retain talent, businesses must adapt to accommodate millennials’ tech-driven approach and stave-off costly turnover. With that said, the appraisal industry does not currently have a large influx of young professionals entering the field, with more than 60% of appraisal professionals over the age of 50. However, with the incorporation of technologies such as the ones outlined above, Colliers Valuation is looking toward the future of the industry and attracting fresh faces in the business. Only time will tell, but it’s likely that adopting new technology will continue to mean positive changes for the valuation side of commercial real estate.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/automation-revamped-valuation/feed/0Q3 2018 U.S. Office Market Outlook Reporthttps://knowledge-leader.colliers.com/editor/q3-2018-u-s-office-market-outlook-report/
https://knowledge-leader.colliers.com/editor/q3-2018-u-s-office-market-outlook-report/#respondThu, 06 Dec 2018 17:45:08 +0000http://knowledge-leader.colliers.com/?p=7378

Office Benefits from Pickup in Jobs and GDP — Leasing and Rents Rise Again As highlighted in Colliers’ Q3 2018 U.S. Office Market Outlook, the U.S. office market remains on...

Office Benefits from Pickup in Jobs and GDP — Leasing and Rents Rise Again

As highlighted in Colliers’ Q3 2018 U.S. Office Market Outlook, the U.S. office market remains on solid ground. Absorption rebounded in Q3 2018 to the highest level in two years. CBD rents rose, and suburban rents held firm. Office vacancy is now at a cyclical low of 11.8% on average for the U.S.
A recent uptick in GDP combined with solid job growth should generate more demand for office space in the near term, but leasing is likely to slow with the expected economic slowdown next year as the economy absorbs higher interest rates and battles labor shortages created by extremely low unemployment rates. Growth is widespread geographically. Positive trends this quarter were led by several lower-cost, high-growth markets.

Key takeaways from this report include:

Vacancy still at historic lows: The U.S. office vacancy rate declined by 20 basis points (bps) in Q3 2018 to 11.8%, within the same narrow range around 12% where it has held since early 2016.

Rents hold firm:S. office asking rents increased by 0.3% in the past quarter and by 2.75% from a year ago. Trends for Class A office asking rates were strongest in the CBD markets, where rents rose by 0.5% for the quarter and 4.1% from a year ago. Rent growth remains strong in tech-driven markets as well as lower cost, high-growth markets throughout the country.

Absorption rebounds: Office absorption increased from 12.1 million square feet in Q2 2018 to 15.5 million square feet in the third quarter, bringing the year-to-date level to 35.1 million square feet, 33% higher than the same time a year ago.

Construction falls but expected to remain near recent levels: The amount of office space delivered fell sharply this quarter, from 18 million square feet last quarter to 10.7 million square feet in the third quarter. While this volume represented the lowest level in the past four years, the amount of space currently under construction rose, indicating that new supply going forward is likely to be more similar to recent historic levels. Not all of this space will be delivered in the next year. Thus, we expect new supply to have peaked in 2017.

Sales volume holds firm:S. office sales volume increased in the third quarter to $35.2 billion but fell by 5% over the past year on a rolling four-quarter basis. Non-major markets continue to account for a larger proportion of sales, equivalent to 46% of sales over the past year, up from 38% two years ago.

Be sure to explore the Q3 2018 update to Your Market Insights Hub | U.S. Office, which presents the latest data and forecasts in a detailed, interactive format – including a new metro map feature.]]>

Office Benefits from Pickup in Jobs and GDP — Leasing and Rents Rise Again As highlighted in Colliers’ Q3 2018 U.S. Office Market Outlook, the U.S. office market remains on...

Office Benefits from Pickup in Jobs and GDP — Leasing and Rents Rise Again

As highlighted in Colliers’ Q3 2018 U.S. Office Market Outlook, the U.S. office market remains on solid ground. Absorption rebounded in Q3 2018 to the highest level in two years. CBD rents rose, and suburban rents held firm. Office vacancy is now at a cyclical low of 11.8% on average for the U.S.
A recent uptick in GDP combined with solid job growth should generate more demand for office space in the near term, but leasing is likely to slow with the expected economic slowdown next year as the economy absorbs higher interest rates and battles labor shortages created by extremely low unemployment rates. Growth is widespread geographically. Positive trends this quarter were led by several lower-cost, high-growth markets.

Key takeaways from this report include:

Vacancy still at historic lows: The U.S. office vacancy rate declined by 20 basis points (bps) in Q3 2018 to 11.8%, within the same narrow range around 12% where it has held since early 2016.

Rents hold firm:S. office asking rents increased by 0.3% in the past quarter and by 2.75% from a year ago. Trends for Class A office asking rates were strongest in the CBD markets, where rents rose by 0.5% for the quarter and 4.1% from a year ago. Rent growth remains strong in tech-driven markets as well as lower cost, high-growth markets throughout the country.

Absorption rebounds: Office absorption increased from 12.1 million square feet in Q2 2018 to 15.5 million square feet in the third quarter, bringing the year-to-date level to 35.1 million square feet, 33% higher than the same time a year ago.

Construction falls but expected to remain near recent levels: The amount of office space delivered fell sharply this quarter, from 18 million square feet last quarter to 10.7 million square feet in the third quarter. While this volume represented the lowest level in the past four years, the amount of space currently under construction rose, indicating that new supply going forward is likely to be more similar to recent historic levels. Not all of this space will be delivered in the next year. Thus, we expect new supply to have peaked in 2017.

Sales volume holds firm:S. office sales volume increased in the third quarter to $35.2 billion but fell by 5% over the past year on a rolling four-quarter basis. Non-major markets continue to account for a larger proportion of sales, equivalent to 46% of sales over the past year, up from 38% two years ago.

In Case You Missed It: Where Gen Y Shops With increased levels of shopping and spending, people are visiting stores to both browse and buy. Because of this, stores are...

In Case You Missed It: Where Gen Y Shops

With increased levels of shopping and spending, people are visiting stores to both browse and buy. Because of this, stores are playing a bigger role in online purchases. The majority of consumers who pick up online orders, go on to make additional in-store purchases.
Fueled by innovation and inspiration from some unlikely places, brands are stepping up to capture consumers’ attention every which way. In the latest Quarterly Retail Spotlight Report, consumers are demanding a level of convenience that retailers must make work. And each year, the growing demand increases. From 2012 to 2018, an estimated 23% growth of customers who regularly order online, collect in store. With this type of growth, it is no longer a trend, but a need. Retailers must execute well to avoid losing the customer experience.

Key takeaways from this report include:

Store visits are increasing. After a number of years of declining satisfaction with physical stores, consumer opinions of them are now starting to improve.

Leisure and experience are key. Although younger shoppers are still visiting stores, their needs are more focused around leisure and experience than older shoppers. They are also much less likely to visit stores for the sole purpose of buying a specific product.

Ownership is less important to younger generations. The millennial generation is used to streaming music, films and books via subscription packages, allowing them huge choice, but not ownership of the product.

Confidence around household finances continued to strengthen into late summer. This bodes well as we move into the peak trading of the holiday season: consumers are in a much better mood than they were at this point last year.

For the first time since 2008 (when recession fatigued customers were desperate for a bargain), the proportion of regular shoppers visiting physical stores over the Black Friday weekend increased.

In Case You Missed It: Where Gen Y Shops With increased levels of shopping and spending, people are visiting stores to both browse and buy. Because of this, stores are...

In Case You Missed It: Where Gen Y Shops

With increased levels of shopping and spending, people are visiting stores to both browse and buy. Because of this, stores are playing a bigger role in online purchases. The majority of consumers who pick up online orders, go on to make additional in-store purchases.
Fueled by innovation and inspiration from some unlikely places, brands are stepping up to capture consumers’ attention every which way. In the latest Quarterly Retail Spotlight Report, consumers are demanding a level of convenience that retailers must make work. And each year, the growing demand increases. From 2012 to 2018, an estimated 23% growth of customers who regularly order online, collect in store. With this type of growth, it is no longer a trend, but a need. Retailers must execute well to avoid losing the customer experience.

Key takeaways from this report include:

Store visits are increasing. After a number of years of declining satisfaction with physical stores, consumer opinions of them are now starting to improve.

Leisure and experience are key. Although younger shoppers are still visiting stores, their needs are more focused around leisure and experience than older shoppers. They are also much less likely to visit stores for the sole purpose of buying a specific product.

Ownership is less important to younger generations. The millennial generation is used to streaming music, films and books via subscription packages, allowing them huge choice, but not ownership of the product.

Confidence around household finances continued to strengthen into late summer. This bodes well as we move into the peak trading of the holiday season: consumers are in a much better mood than they were at this point last year.

For the first time since 2008 (when recession fatigued customers were desperate for a bargain), the proportion of regular shoppers visiting physical stores over the Black Friday weekend increased.

By now, everyone’s heard Amazon’s announcement for their new headquarters’ locations. News seems to be breaking swiftly as details surface and time tables are released. Now it’s commercial real estate’s...

By now, everyone’s heard Amazon’s announcement for their new headquarters’ locations. News seems to be breaking swiftly as details surface and time tables are released. Now it’s commercial real estate’s turn to start analyzing how Amazon’s decision will impact the markets. In this series, Colliers will explore the effects we anticipate Amazon to have on the D.C. Metropolitan market.
While the entire Metropolitan D.C. region is poised to benefit from Amazon’s HQ2, no other area of the market will be impacted like National Landing.

Where is National Landing?

National Landing is a geographic area in Northern Virginia branded specifically to outline the region Arlington County and Alexandra City submitted to Amazon for HQ2. It includes the current Crystal City and Pentagon City submarkets as well as the Potomac Yard neighborhood of the Old Town submarket. Because of the natural connection between Crystal and Pentagon Cities, the submarkets are typically clustered together for analysis purposes. Given the inclusion of Potomac Yard in Amazon’s plans, geographic boundaries need to be redrawn to support a clear understanding of market conditions.

Immediate Impact on National Landing

In a recent press release, JBG SMITH announced that Amazon has proposed to lease an estimated 500,000 square feet of existing space in what is now National Landing. The length and commencement dates for these leases have not been revealed. The 500,000 square feet will be split between three buildings: 241 18th Street South, 1800 South Bell Street and 1770 Crystal Drive. These buildings are located on the east side of Route 1 and will house the initial wave of employees hired by the tech and retail giant. Announcements have been made that 1800 South Bell Street will be modernized, and that the renovation of 1770 Crystal Drive will commence during the fourth quarter of 2018.
The proposed plans also have Amazon purchasing PenPlace along with the land at Met 6, 7 and 8. These development sites have a potential density of 4.1 million square feet. JBG SMITH will be retained as the development partner, property manager and retail leasing agent, who also announced that planning for the first building will occur this year with construction to begin in 2019.
Additionally, as part of the incentive package offered to Amazon, the Commonwealth of Virginia in conjunction with Virginia Tech announced that a $1 billion Innovation Campus will be built in the Potomac Yard region of National Landing. The intent of the investment is to ensure the availability of a growing pool of workers possessing technical and innovative expertise. The campus will bring together hundreds of new graduate students, dozens of faculty members and numerous industry partners. Virginia Tech has already entered a memorandum of understanding with Stonebridge Associates and the City of Alexandria to construct the campus on Blackstone Group’s land at Swann Road. The campus will include 300,000 square feet of academic space, research and development facilities, 250,000 square feet of partner space dedicated to startups and corporate facilities, 350,000 square feet of student and faculty housing and 100,000 square feet of retail. This expansion will triple the university’s footprint in Northern Virginia.

Market Implications for National Landing

Amazon’s promise to generate 25,000 jobs in the region will result in a significant increase in demand for office space and alter the real estate investment fundamentals in this market. It is reported that Amazon will start occupying space in 2019, hiring only 400 people. In both 2027 and 2028, it is anticipated that the pace of employment will accelerate to 3,000 jobs annually. Assuming that Amazon remains in the buildings initially leased, it will occupy 4.6 million square feet or nearly 36% of National Landing’s current inventory.
As in Seattle, the new Amazon headquarters will attract other companies that want to be near the eRetailer. While these companies can occupy space in several other locations around the region, a number will move into the National Landing submarket. It is possible that the market will witness 1.6 to 3.2 million square feet of additional demand in the next 15 years. Combining Amazon and companies that follow the eRetailer, a total of 5.8 to 7.0 million square feet of new demand is anticipated in National Landing. Amazon’s growth in the Seattle region often exceeded expectations. This phenomenon is likely to occur in the Washington, D.C. region as well. As a result, Colliers’ growth assumptions may be understated.
Demand related to Amazon and firms electing to locate their offices near Amazon will outstrip the amount of space currently available in National Landing. In addition to the 4.1 million square feet of space to be built for Amazon, 250,000 square feet of Virginia Tech’s Innovation Campus will be dedicated to “partner facilities and corporate space.” However, in the absence of significant additional development, downward pressure on vacancy rates is likely, thereby impacting rents. Presently, asking rental rates average $37.08 per square foot. If rents grow at half the pace experienced over time in Seattle, National Landing rental rates would grow 17% in five years and 37% in 10 years. That said, the timing and scale of future development is an important variable in this equation. There are several land sites in both Crystal City and Potomac Yard that could be developed to meet demand. Moreover, it is likely that some of the existing 1960’s era, mid-rise buildings may be demolished to make way for new, high-rise office towers.
Amazon’s decision to locate offices in the Washington, D.C. region will transform the real estate market in multiple ways, impacting citizens, workers, tenants, owners and investors. As more specific information is released by Amazon, Arlington County and the Commonwealth of Virginia, the breadth of change related to Amazon’s decision will become clearer.
“The impact of Amazon is already being felt. Landlords are more confident in the demand profile of Arlington County than they have been in years. Much like the federal government, although on a smaller scale, Amazon is a large consumer of office space and a driver of additional demand. This rising confidence has already emboldened some landlords to increase asking rates and to withdraw from active federal procurements.”Charles Dilks, Executive Vice President | Government Solutions | Colliers International
The pace of change and increase in rents will affect a number of existing industries. Stay tuned for the next issue of The Amazon Effect, when Colliers explores this issue.]]>

By now, everyone’s heard Amazon’s announcement for their new headquarters’ locations. News seems to be breaking swiftly as details surface and time tables are released. Now it’s commercial real estate’s...

By now, everyone’s heard Amazon’s announcement for their new headquarters’ locations. News seems to be breaking swiftly as details surface and time tables are released. Now it’s commercial real estate’s turn to start analyzing how Amazon’s decision will impact the markets. In this series, Colliers will explore the effects we anticipate Amazon to have on the D.C. Metropolitan market.
While the entire Metropolitan D.C. region is poised to benefit from Amazon’s HQ2, no other area of the market will be impacted like National Landing.

Where is National Landing?

National Landing is a geographic area in Northern Virginia branded specifically to outline the region Arlington County and Alexandra City submitted to Amazon for HQ2. It includes the current Crystal City and Pentagon City submarkets as well as the Potomac Yard neighborhood of the Old Town submarket. Because of the natural connection between Crystal and Pentagon Cities, the submarkets are typically clustered together for analysis purposes. Given the inclusion of Potomac Yard in Amazon’s plans, geographic boundaries need to be redrawn to support a clear understanding of market conditions.

Immediate Impact on National Landing

In a recent press release, JBG SMITH announced that Amazon has proposed to lease an estimated 500,000 square feet of existing space in what is now National Landing. The length and commencement dates for these leases have not been revealed. The 500,000 square feet will be split between three buildings: 241 18th Street South, 1800 South Bell Street and 1770 Crystal Drive. These buildings are located on the east side of Route 1 and will house the initial wave of employees hired by the tech and retail giant. Announcements have been made that 1800 South Bell Street will be modernized, and that the renovation of 1770 Crystal Drive will commence during the fourth quarter of 2018.
The proposed plans also have Amazon purchasing PenPlace along with the land at Met 6, 7 and 8. These development sites have a potential density of 4.1 million square feet. JBG SMITH will be retained as the development partner, property manager and retail leasing agent, who also announced that planning for the first building will occur this year with construction to begin in 2019.
Additionally, as part of the incentive package offered to Amazon, the Commonwealth of Virginia in conjunction with Virginia Tech announced that a $1 billion Innovation Campus will be built in the Potomac Yard region of National Landing. The intent of the investment is to ensure the availability of a growing pool of workers possessing technical and innovative expertise. The campus will bring together hundreds of new graduate students, dozens of faculty members and numerous industry partners. Virginia Tech has already entered a memorandum of understanding with Stonebridge Associates and the City of Alexandria to construct the campus on Blackstone Group’s land at Swann Road. The campus will include 300,000 square feet of academic space, research and development facilities, 250,000 square feet of partner space dedicated to startups and corporate facilities, 350,000 square feet of student and faculty housing and 100,000 square feet of retail. This expansion will triple the university’s footprint in Northern Virginia.

Market Implications for National Landing

Amazon’s promise to generate 25,000 jobs in the region will result in a significant increase in demand for office space and alter the real estate investment fundamentals in this market. It is reported that Amazon will start occupying space in 2019, hiring only 400 people. In both 2027 and 2028, it is anticipated that the pace of employment will accelerate to 3,000 jobs annually. Assuming that Amazon remains in the buildings initially leased, it will occupy 4.6 million square feet or nearly 36% of National Landing’s current inventory.
As in Seattle, the new Amazon headquarters will attract other companies that want to be near the eRetailer. While these companies can occupy space in several other locations around the region, a number will move into the National Landing submarket. It is possible that the market will witness 1.6 to 3.2 million square feet of additional demand in the next 15 years. Combining Amazon and companies that follow the eRetailer, a total of 5.8 to 7.0 million square feet of new demand is anticipated in National Landing. Amazon’s growth in the Seattle region often exceeded expectations. This phenomenon is likely to occur in the Washington, D.C. region as well. As a result, Colliers’ growth assumptions may be understated.
Demand related to Amazon and firms electing to locate their offices near Amazon will outstrip the amount of space currently available in National Landing. In addition to the 4.1 million square feet of space to be built for Amazon, 250,000 square feet of Virginia Tech’s Innovation Campus will be dedicated to “partner facilities and corporate space.” However, in the absence of significant additional development, downward pressure on vacancy rates is likely, thereby impacting rents. Presently, asking rental rates average $37.08 per square foot. If rents grow at half the pace experienced over time in Seattle, National Landing rental rates would grow 17% in five years and 37% in 10 years. That said, the timing and scale of future development is an important variable in this equation. There are several land sites in both Crystal City and Potomac Yard that could be developed to meet demand. Moreover, it is likely that some of the existing 1960’s era, mid-rise buildings may be demolished to make way for new, high-rise office towers.
Amazon’s decision to locate offices in the Washington, D.C. region will transform the real estate market in multiple ways, impacting citizens, workers, tenants, owners and investors. As more specific information is released by Amazon, Arlington County and the Commonwealth of Virginia, the breadth of change related to Amazon’s decision will become clearer.
“The impact of Amazon is already being felt. Landlords are more confident in the demand profile of Arlington County than they have been in years. Much like the federal government, although on a smaller scale, Amazon is a large consumer of office space and a driver of additional demand. This rising confidence has already emboldened some landlords to increase asking rates and to withdraw from active federal procurements.”Charles Dilks, Executive Vice President | Government Solutions | Colliers International
The pace of change and increase in rents will affect a number of existing industries. Stay tuned for the next issue of The Amazon Effect, when Colliers explores this issue.]]>https://knowledge-leader.colliers.com/robert-hartley/amazon-effect-part-1-impact-national-landings-office-market/feed/0Is Black Friday Still Relevant?https://knowledge-leader.colliers.com/anjee-solanki/black-friday-still-relevant/
https://knowledge-leader.colliers.com/anjee-solanki/black-friday-still-relevant/#respondMon, 03 Dec 2018 20:00:57 +0000http://knowledge-leader.colliers.com/?p=7359

Black Friday has been an eponymous day for retailers’ profit margins and synonymous with savings for consumers. But lately, the question is whether the traditional Black Friday rush to stores...

Black Friday has been an eponymous day for retailers’ profit margins and synonymous with savings for consumers. But lately, the question is whether the traditional Black Friday rush to stores will become subsumed by online shopping or made less relevant by the seemingly endless series of promotions. The good news is that, whether they were shopping online or at brick-and-mortar locations, more than 165 million people turned up this year for Black Friday to convert shopping carts into dollars.
Just as we predicted.
The Colliers Fall 2018 Quarterly Spotlight Report: Click and Collect included results from a GlobalData survey of approximately 15,000 consumers about their shopping habits and whether they would spend more during this holiday season compared to 2017. The study showed that a record 63.1% of consumers planned to spend more this year than they did last year, and only 12.6% said they would spend less in 2018 than they did in 2017. Our (unscientific) Twitter poll showed similar results.
The Colliers survey also detailed how retailers have made great strides in blending the in-store and digital experiences, to meet shoppers where they are, in-store, online, or more likely, on their smartphones. With retailers embracing the value of an omnichannel strategy as leverage to engage consumers more fluidly — combined with increased consumer confidence — it made sense that consumer spending would be on the rise this holiday season.
According to the National Retail Foundation, retail sales for the end of the year are expected to climb between 4.3% and 4.8%over 2017 to between $717 billion and $720 billion. That’s an ample amount of revenue at stake. Retailers across the U.S. have been taking advantage of this potential influx of dollars promoting Black Friday and Cyber Monday deals weeks in advance as well as offering sneak peeks into the specials before the actual sales day themselves.
More than half of shoppers — around 89 million people — purchased items both online and in stores during the Thanksgiving holiday weekend and on Cyber Monday. Online retail sales, in general, made up a larger share of the pie, with online spending (via mobile) on Black Friday reaching $3.7 billion, up 28% from last year. Cyber Monday raked in $7.9 billion, making it the biggest online shopping day in U.S. history, with more than 50% of site visits facilitated on a smartphone (according to Adobe Analytics).
Today’s consumers savvily cross-check prices on their mobile devices to ensure they’re getting the best value for their purchase, so the idea of a special sale seems to be going the way of the dinosaur. And if anything, the holiday savings season has become elastic. Consumers, myself included, are bombarded with sale promotions and discount offers nearly every day of the year, and as far as I can tell it feels like the concept of Black Friday may no longer be relevant.
For more of my thoughts about Black Friday check out my recent interview with National Real Estate Investor here, and join the conversation by tweeting me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>

Black Friday has been an eponymous day for retailers’ profit margins and synonymous with savings for consumers. But lately, the question is whether the traditional Black Friday rush to stores...

Black Friday has been an eponymous day for retailers’ profit margins and synonymous with savings for consumers. But lately, the question is whether the traditional Black Friday rush to stores will become subsumed by online shopping or made less relevant by the seemingly endless series of promotions. The good news is that, whether they were shopping online or at brick-and-mortar locations, more than 165 million people turned up this year for Black Friday to convert shopping carts into dollars.
Just as we predicted.
The Colliers Fall 2018 Quarterly Spotlight Report: Click and Collect included results from a GlobalData survey of approximately 15,000 consumers about their shopping habits and whether they would spend more during this holiday season compared to 2017. The study showed that a record 63.1% of consumers planned to spend more this year than they did last year, and only 12.6% said they would spend less in 2018 than they did in 2017. Our (unscientific) Twitter poll showed similar results.
The Colliers survey also detailed how retailers have made great strides in blending the in-store and digital experiences, to meet shoppers where they are, in-store, online, or more likely, on their smartphones. With retailers embracing the value of an omnichannel strategy as leverage to engage consumers more fluidly — combined with increased consumer confidence — it made sense that consumer spending would be on the rise this holiday season.
According to the National Retail Foundation, retail sales for the end of the year are expected to climb between 4.3% and 4.8%over 2017 to between $717 billion and $720 billion. That’s an ample amount of revenue at stake. Retailers across the U.S. have been taking advantage of this potential influx of dollars promoting Black Friday and Cyber Monday deals weeks in advance as well as offering sneak peeks into the specials before the actual sales day themselves.
More than half of shoppers — around 89 million people — purchased items both online and in stores during the Thanksgiving holiday weekend and on Cyber Monday. Online retail sales, in general, made up a larger share of the pie, with online spending (via mobile) on Black Friday reaching $3.7 billion, up 28% from last year. Cyber Monday raked in $7.9 billion, making it the biggest online shopping day in U.S. history, with more than 50% of site visits facilitated on a smartphone (according to Adobe Analytics).
Today’s consumers savvily cross-check prices on their mobile devices to ensure they’re getting the best value for their purchase, so the idea of a special sale seems to be going the way of the dinosaur. And if anything, the holiday savings season has become elastic. Consumers, myself included, are bombarded with sale promotions and discount offers nearly every day of the year, and as far as I can tell it feels like the concept of Black Friday may no longer be relevant.
For more of my thoughts about Black Friday check out my recent interview with National Real Estate Investor here, and join the conversation by tweeting me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>https://knowledge-leader.colliers.com/anjee-solanki/black-friday-still-relevant/feed/0Opportunity Awaits: A Conversation About the Impact of Opportunity Zone Investinghttps://knowledge-leader.colliers.com/stephen-shapiro/opportunity-awaits-conversation-impact-opportunity-zone-investing-stephen-shapiro-senior-leader-colliers-international/
https://knowledge-leader.colliers.com/stephen-shapiro/opportunity-awaits-conversation-impact-opportunity-zone-investing-stephen-shapiro-senior-leader-colliers-international/#commentsFri, 30 Nov 2018 17:30:37 +0000http://knowledge-leader.colliers.com/?p=7342

This thought leadership piece is the first in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors. Recognizing the need for growth...

This thought leadership piece is the first in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors.
Recognizing the need for growth expansion outside core markets, the federal government created new tax regulations to stimulate economic growth in areas that otherwise may have been overlooked. This stimulus was borne from the Tax Cuts and Jobs Act and has quickly become the most talked about investment thesis from coast to coast. Poised to re-shape once marginalized communities, the Opportunity Zone program will create an unprecedented opportunity for long-term capital appreciation and socioeconomic change. The OZ program as it is commonly known, will yield tax savings across the investment spectrum from real estate to small businesses.
By way of background, land parcels eligible for Opportunity Zones were nominated by State and Federal officials based on census data in their respective communities. In June, the Department of the Treasury finalized the 8,700 Opportunity Zones throughout the country. These designated areas provide tax benefits as any investment in real estate or businesses provide the potential to completely defer the payment of capital gains taxes, if the investment is held longer than 10 years. Stephen Shapiro, one of the senior leaders in the Colliers New York City office, has his finger on the pulse of domestic and foreign commercial real estate investments trends. Although the specific regulations have yet to be entirely defined, he has studied the proposed change in preparation of the regulatory release.
“This legislation will enable real estate investors to create transformative neighborhoods, by leading infrastructure development. The opportunity to grow a neighborhood organically with residential, commercial and business development creates capital preservation in a way that’s never been seen before,” says Shapiro “It’s allowing investors to put their money to work in the most efficient way while providing net positive long-term impact to communities that may have otherwise never been invested.”
The Opportunity Zone program has already attracted the highest quality, blue-chip investors from all real estate backgrounds. With several billion dollars raised thus far, it is clear that this is a high priority investment thesis.
While the popular 1031 program delays capital gains, Opportunity Zones will grant investors the potential for a complete exclusion of capital gains if the asset is held for a period of 10 years. Opportunity Zones, unlike 1031, provide for the shelter of capital gains for all types of investments, not just real property. Shapiro remarks, “The 1031 was just focused on real estate, but the Opportunity Zone program is serving as a catalyst to tap into the $6.1 trillion in total unrealized capital gains from both American households and corporations.”
With accelerating speed over the last several months, organizations from nonprofits to investment groups have proposed a wide variety of approaches to capitalizing on opportunity zones. But because of the vast benefits that stand to be collected, this program will attract more than just traditional commercial real estate investors.
The Opportunity Zone program says it all in the title: the opportunity is there for growth, financially and otherwise, for both investors and communities that lie in existing opportunity zones.
When asked how investors can take advantage of the Opportunity Zone program, Shapiro responded, “By expanding their investment geography and hold period, investors have the potential to realize exceptional returns while at the same time providing the capital needed for a community to thrive. Anyone that has ever made a successful investment says the same thing ‘I wish I had gotten in on the ground floor’. The OZ program allows investors to make the ground-floor investment in high-potential growth markets while making a lasting, meaningful change in that neighborhood.”

Waiting for Answers about Opportunity Zones

When announced as part of the Tax Cuts and Jobs Act, organizations from every sector began raising funds to dedicate to Opportunity Zones. However, a year later, there are still unanswered questions about how the regulations will affect these funds.
In a September 2018 Bloomberg report, EIG co-founder John Lettieri stated, “Not all regulatory questions are equally critical at this stage. Most investors aren’t willing to commit their capital until Treasury releases clear rules of the road.”
As of October 2018, the Office of Management and Budget sent proposed rules to the Treasury for review. Over the next month the Treasury Department and the Internal Revenue Service will be providing additional details including legal guidance on this new tax benefit. Eager investors are closer than ever to being able to participate in this exciting new program.
In a new development, Amazon announced its HQ2 location in Long Island City, which lies in an opportunity zone—a prime example of how the Opportunity Zone program may transform the geography of U.S. real estate investment. The trickle-down results of this program are already being seen, and it hasn’t even taken effect yet.
There are two aspects of the Opportunity Zone program Shapiro is tracking, one being Opportunity Zone investing because there is a finite limit to land parcels with this designation. “With the Opportunity Zone program is there a point, where you actually run out of potential Opportunity Zones to invest in? Given that there is a finite number of parcels how does that affect values and liquidity of the sites?”
The other point Shapiro considers is how real estate investments will shift because the program caters to long-term investments. For capital gains to be exempt from tax liability, investors must hold the property for over 10 years. This will impact businesses and their models, but also communities as developments in multifamily and commercial real estate spaces have a legacy effect.
Another benefit of this program is to reduce property flipping and create more stability in previously economically-distressed, high-turnover areas. Businesses are often the staple in strong communities. With the Opportunity Zone program, commercial real estate investors will drive this neighborhood grounding and building effort as a result of their longer-term investment in assets.
The OZ program will have a transformative effect for communities across the board. Shapiro concludes, “They will add value to any neighborhood.”
Stephen Shapiro is a senior managing director in Colliers International’s New York Capital Markets & Investment Services group. Over his 18-year commercial real estate career, Mr. Shapiro has participated in transactions valued at more than $30 billion throughout the Tri-State Region.Next topic in the series: Opportunity Zones and Warehouse Distribution]]>

This thought leadership piece is the first in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors. Recognizing the need for growth...

This thought leadership piece is the first in a series to examine the potential impact of Opportunity Zones on communities and specialized real estate sectors.
Recognizing the need for growth expansion outside core markets, the federal government created new tax regulations to stimulate economic growth in areas that otherwise may have been overlooked. This stimulus was borne from the Tax Cuts and Jobs Act and has quickly become the most talked about investment thesis from coast to coast. Poised to re-shape once marginalized communities, the Opportunity Zone program will create an unprecedented opportunity for long-term capital appreciation and socioeconomic change. The OZ program as it is commonly known, will yield tax savings across the investment spectrum from real estate to small businesses.
By way of background, land parcels eligible for Opportunity Zones were nominated by State and Federal officials based on census data in their respective communities. In June, the Department of the Treasury finalized the 8,700 Opportunity Zones throughout the country. These designated areas provide tax benefits as any investment in real estate or businesses provide the potential to completely defer the payment of capital gains taxes, if the investment is held longer than 10 years. Stephen Shapiro, one of the senior leaders in the Colliers New York City office, has his finger on the pulse of domestic and foreign commercial real estate investments trends. Although the specific regulations have yet to be entirely defined, he has studied the proposed change in preparation of the regulatory release.
“This legislation will enable real estate investors to create transformative neighborhoods, by leading infrastructure development. The opportunity to grow a neighborhood organically with residential, commercial and business development creates capital preservation in a way that’s never been seen before,” says Shapiro “It’s allowing investors to put their money to work in the most efficient way while providing net positive long-term impact to communities that may have otherwise never been invested.”
The Opportunity Zone program has already attracted the highest quality, blue-chip investors from all real estate backgrounds. With several billion dollars raised thus far, it is clear that this is a high priority investment thesis.
While the popular 1031 program delays capital gains, Opportunity Zones will grant investors the potential for a complete exclusion of capital gains if the asset is held for a period of 10 years. Opportunity Zones, unlike 1031, provide for the shelter of capital gains for all types of investments, not just real property. Shapiro remarks, “The 1031 was just focused on real estate, but the Opportunity Zone program is serving as a catalyst to tap into the $6.1 trillion in total unrealized capital gains from both American households and corporations.”
With accelerating speed over the last several months, organizations from nonprofits to investment groups have proposed a wide variety of approaches to capitalizing on opportunity zones. But because of the vast benefits that stand to be collected, this program will attract more than just traditional commercial real estate investors.
The Opportunity Zone program says it all in the title: the opportunity is there for growth, financially and otherwise, for both investors and communities that lie in existing opportunity zones.
When asked how investors can take advantage of the Opportunity Zone program, Shapiro responded, “By expanding their investment geography and hold period, investors have the potential to realize exceptional returns while at the same time providing the capital needed for a community to thrive. Anyone that has ever made a successful investment says the same thing ‘I wish I had gotten in on the ground floor’. The OZ program allows investors to make the ground-floor investment in high-potential growth markets while making a lasting, meaningful change in that neighborhood.”

Waiting for Answers about Opportunity Zones

When announced as part of the Tax Cuts and Jobs Act, organizations from every sector began raising funds to dedicate to Opportunity Zones. However, a year later, there are still unanswered questions about how the regulations will affect these funds.
In a September 2018 Bloomberg report, EIG co-founder John Lettieri stated, “Not all regulatory questions are equally critical at this stage. Most investors aren’t willing to commit their capital until Treasury releases clear rules of the road.”
As of October 2018, the Office of Management and Budget sent proposed rules to the Treasury for review. Over the next month the Treasury Department and the Internal Revenue Service will be providing additional details including legal guidance on this new tax benefit. Eager investors are closer than ever to being able to participate in this exciting new program.
In a new development, Amazon announced its HQ2 location in Long Island City, which lies in an opportunity zone—a prime example of how the Opportunity Zone program may transform the geography of U.S. real estate investment. The trickle-down results of this program are already being seen, and it hasn’t even taken effect yet.
There are two aspects of the Opportunity Zone program Shapiro is tracking, one being Opportunity Zone investing because there is a finite limit to land parcels with this designation. “With the Opportunity Zone program is there a point, where you actually run out of potential Opportunity Zones to invest in? Given that there is a finite number of parcels how does that affect values and liquidity of the sites?”
The other point Shapiro considers is how real estate investments will shift because the program caters to long-term investments. For capital gains to be exempt from tax liability, investors must hold the property for over 10 years. This will impact businesses and their models, but also communities as developments in multifamily and commercial real estate spaces have a legacy effect.
Another benefit of this program is to reduce property flipping and create more stability in previously economically-distressed, high-turnover areas. Businesses are often the staple in strong communities. With the Opportunity Zone program, commercial real estate investors will drive this neighborhood grounding and building effort as a result of their longer-term investment in assets.
The OZ program will have a transformative effect for communities across the board. Shapiro concludes, “They will add value to any neighborhood.”
Stephen Shapiro is a senior managing director in Colliers International’s New York Capital Markets & Investment Services group. Over his 18-year commercial real estate career, Mr. Shapiro has participated in transactions valued at more than $30 billion throughout the Tri-State Region.Next topic in the series: Opportunity Zones and Warehouse Distribution]]>https://knowledge-leader.colliers.com/stephen-shapiro/opportunity-awaits-conversation-impact-opportunity-zone-investing-stephen-shapiro-senior-leader-colliers-international/feed/1Leasing Still Solid Across Major Office Marketshttps://knowledge-leader.colliers.com/editor/q3-2018-top-office-metros-snapshot/
https://knowledge-leader.colliers.com/editor/q3-2018-top-office-metros-snapshot/#respondThu, 29 Nov 2018 17:45:02 +0000http://knowledge-leader.colliers.com/?p=7334

New Deliveries Fall but Construction Still Growing and Will Challenge Occupancy Rates in 2019 The Q3 2018 U.S. Top Office Metros Snapshot reports that all but one of the top...

New Deliveries Fall but Construction Still Growing and Will Challenge Occupancy Rates in 2019

The Q3 2018 U.S. Top Office Metros Snapshot reports that all but one of the top 10 U.S. office markets posted positive absorption in Q3 2018 — though absorption declined in the five markets relative to Q2 2018. Construction fell markedly this quarter versus last, with less product coming to market in seven of the 10 metros. Still, construction continues to be a concern in some markets as building area under construction continues to rise and new supply is undercutting occupancy gains, even where leasing activity is quite strong. Rents rose at least 1% compared with Q2 2018 in six of the 10 metros, led by 2.4% in New York, but fell significantly in the San Francisco Bay Area. With coworking accounting for a large and growing share of leasing in key markets, traditional property metrics like vacancy rates are becoming less reliable and less meaningful.

Key takeaways from this report include:

The San Francisco Bay Area continues to power ahead, with leasing activity well above long-term averages, fueled primarily by large tech firms.

Manhattan leasing surged to a four-year high last quarter, up 20% over Q3 2017, driven by the FIRE (financial services, insurance and real estate) sector.

After a stellar start this year, vacancies in Boston increased in Q3 2018, rising to 9.5% in the core areas covered by this report, but still, the fourth-lowest vacancy rate of the 10 markets in this report, and rents still rose more than 1% over the quarter.

The worst may be over for Washington, D.C. Vacancies dropped 20 basis points (bps) in the quarter despite a doubling of new supply delivered, but space under construction declined by almost 20%.

Chicago’s central business district (CBD) suffered a disappointing quarter, with vacancies climbing 150 bps to 14.8%, its highest rate in years, as tenants vacate older offices to lease in the new construction being delivered.

Seattle’s office market continued to shine in Q3 2018 as strong leasing caused vacancy to drop to 7.7% in the areas covered by this report.

Houston continues to struggle but is making some progress. Though vacancies dropped by 10 bps in the quarter, its vacancy rate remains by far the highest among the top 10 markets at 21.5%.

With net absorption in its core areas of more than 900,000 square feet, Dallas saw vacancies drop 70 bps, the most of any top 10 metro. A key reason: more than 30 leases of 10,000+ square feet were signed in the quarter.

Atlanta tread water this quarter, with no new supply added and net absorption essentially zero, so the vacancy rate stayed at 13.7% for the core submarkets tracked for this report.

New Deliveries Fall but Construction Still Growing and Will Challenge Occupancy Rates in 2019 The Q3 2018 U.S. Top Office Metros Snapshot reports that all but one of the top...

New Deliveries Fall but Construction Still Growing and Will Challenge Occupancy Rates in 2019

The Q3 2018 U.S. Top Office Metros Snapshot reports that all but one of the top 10 U.S. office markets posted positive absorption in Q3 2018 — though absorption declined in the five markets relative to Q2 2018. Construction fell markedly this quarter versus last, with less product coming to market in seven of the 10 metros. Still, construction continues to be a concern in some markets as building area under construction continues to rise and new supply is undercutting occupancy gains, even where leasing activity is quite strong. Rents rose at least 1% compared with Q2 2018 in six of the 10 metros, led by 2.4% in New York, but fell significantly in the San Francisco Bay Area. With coworking accounting for a large and growing share of leasing in key markets, traditional property metrics like vacancy rates are becoming less reliable and less meaningful.

Key takeaways from this report include:

The San Francisco Bay Area continues to power ahead, with leasing activity well above long-term averages, fueled primarily by large tech firms.

Manhattan leasing surged to a four-year high last quarter, up 20% over Q3 2017, driven by the FIRE (financial services, insurance and real estate) sector.

After a stellar start this year, vacancies in Boston increased in Q3 2018, rising to 9.5% in the core areas covered by this report, but still, the fourth-lowest vacancy rate of the 10 markets in this report, and rents still rose more than 1% over the quarter.

The worst may be over for Washington, D.C. Vacancies dropped 20 basis points (bps) in the quarter despite a doubling of new supply delivered, but space under construction declined by almost 20%.

Chicago’s central business district (CBD) suffered a disappointing quarter, with vacancies climbing 150 bps to 14.8%, its highest rate in years, as tenants vacate older offices to lease in the new construction being delivered.

Seattle’s office market continued to shine in Q3 2018 as strong leasing caused vacancy to drop to 7.7% in the areas covered by this report.

Houston continues to struggle but is making some progress. Though vacancies dropped by 10 bps in the quarter, its vacancy rate remains by far the highest among the top 10 markets at 21.5%.

With net absorption in its core areas of more than 900,000 square feet, Dallas saw vacancies drop 70 bps, the most of any top 10 metro. A key reason: more than 30 leases of 10,000+ square feet were signed in the quarter.

Atlanta tread water this quarter, with no new supply added and net absorption essentially zero, so the vacancy rate stayed at 13.7% for the core submarkets tracked for this report.

For more details on the latest office trends in these top metro markets, download the Q3 2018 U.S. Top Office Metros Snapshot and look for our full Q3 2018 U.S. Office Report coming soon.]]>https://knowledge-leader.colliers.com/editor/q3-2018-top-office-metros-snapshot/feed/0The Challenges Faced by FMCG Supply Chain Usershttps://knowledge-leader.colliers.com/danny_green/the-challenges-faced-by-fmcg-supply-chain-users/
https://knowledge-leader.colliers.com/danny_green/the-challenges-faced-by-fmcg-supply-chain-users/#respondWed, 28 Nov 2018 18:06:13 +0000http://knowledge-leader.colliers.com/?p=7329

The retail industry for Fast Moving Consumer Goods (FMCGs) has transformed before our eyes over the past decade. We’ve watched the rise of e-commerce, we’ve seen the changing nature of...

The retail industry for Fast Moving Consumer Goods (FMCGs) has transformed before our eyes over the past decade. We’ve watched the rise of e-commerce, we’ve seen the changing nature of grocery shopping emerging globally and we’ve personally raised our expectations as consumers.
As the industry continues to transform and supermarket giants up their game to increase market share, FMCG supply chain users are faced with a number of key challenges including cost minimalization, meeting increasingly diverse customer requirements and ensuring availability and fulfillment of customer demand.

What is driving change in this environment?

Consumers shopping habits and expectations are changing at a rate previously unimagined. Traditional requirements of convenience and cost are no longer the only forces impacting purchasing decisions. Consumers have learned they are no longer constrained by purchasing options dictated by retailers. They can access what they want, where and whenever they want it; and what they want is more choice. This has resulted in more diversity in demand ranging from global online retailing, to an increased focus on locally sourced, organic and sustainably-sourced products. This behaviour has fragmented the market into smaller segments meaning that sales units are moving from bulk shipments to increasingly more customized offers encompassing a larger variety of products, with smaller quantities of orders at a higher frequency in turnover.
This market fragmentation has disrupted what has basically been 14 years of growing market share for the dominant retailers, thus making room for new competitors to enter the market and driving retailers to expand their offering into other retail segments. Organisations like Aldi, a discount grocer, are increasing their market share and challenging the status quo of the big grocery chains. The competitive tension that is being created by new entrants is fuelling the drive to find efficiencies in every part of the supply chain.

Responding to change

While today’s FMCG supply chains can be viewed as efficient, it is becoming increasingly apparent that the traditional assumptions driving infrastructure investment will change. To respond to these transformative changes, the FMCG and, in particular, the food industry supply chains, will require adaptations to reduce costs and increase supply chain responsiveness.

Distribution facilities for FMCGs

The nature of the FMCG industry means deliveries need to happen constantly, with the flexibility to adapt to seasonal fluctuations (peaks can be as high as 400% annually) and shorter life spans (driven by both perishability and changes in customer taste). All this has to be catered for while continuing to seek greater supply chain efficiency by streamlining processes and maintaining economies of scale to meet price expectations when moving from “paddock to plate”.
Over the past two years we’ve watched as large players in the FMCG space have begun to advance their thinking on warehouses, operations and supply chains to remain competitive in a dynamic industry and service consumers as required. An example of the competitive edge resulting from this approach can be seen by Amazon’s warehouse in California.
With retailers restructuring their own supply chain, manufacturers are forced to carry higher volumes of stock to meet demanding service levels. Optimizing storage space efficiency has become a significant challenge, forcing the take-up of advancements in industrial automation like ASRS, AGVS, voice picking and mobile device-driven fulfilment solutions. We understand through industry sources that the payback on technological investments within warehouses (for example, automation and robotics) is typically around seven years — a hefty investment but one that can result in a significant benefit to meeting the changing demands of consumers, particularly for those who adopted the technology early.
The tools required to manage logistics also need to evolve to cope with the shifting landscape. Real-time visibility of the supply chain is paramount, with warehouse and transport management systems being increasing reliant on high speed, high capacity communication network connection and requiring consistent and ‘fail safe’ energy supply to maintain the increasing data demand needed to support inventory, business and customer interactions. Quality facilities also need to be considered to meet the needs of a smaller, more technically-skilled workforce to support the increasingly sophisticated and technologically-driven environment that is developing for FMCG supply chain developments.

Transport

While capital expenses within the transportation industry continue to rise, FMCGs, food manufacturers and growers are experiencing “sticker shock” as they review the pressures of greater efficiency in production, fragmented demand and more frequent replenishment cycles. This has been exacerbated by upward pressures in supply chain costs, such as the current driver shortage in many places, which has driven up wages across the industry.
Driver shortages have resulted in an increased focus on utilization of transport resources to try and combine efficiencies of scale for larger vehicles travelling long distances, meanwhile the effectiveness of smaller vehicles undertaking multiple customer deliveries within congested urban environments is another priority. Minimizing empty space within a vehicle and reducing travel distances are two ways to boost utilization and decrease transport associated costs. This can be supported by smaller distribution centers or forward-stocking locations in city fringe locations where the providers can access their target demographic within a 30-minute time frame. Forward thinking FMCG supply chain users could also potentially leverage cross-customer network opportunities, including leveraging a neighborhood’s demand density across multiple suppliers to drive up transport utilization and reduce service frequency.
Distribution facilities and locations, along with a robust supply chain strategy, will play a critical role in the success of FMCG operators in the coming 12 to 18 months. In order to maintain a competitive position and access key demand demographics, businesses will need to consider where they should be located and what’s the most efficient way of getting their products to their final destinations.
As a National Director with Colliers International’s Australian Occupier Services team, Danny focuses on industrial and commercial occupiers and corporate clients with a presence in Australia and facilities across the globe.]]>

The retail industry for Fast Moving Consumer Goods (FMCGs) has transformed before our eyes over the past decade. We’ve watched the rise of e-commerce, we’ve seen the changing nature of...

The retail industry for Fast Moving Consumer Goods (FMCGs) has transformed before our eyes over the past decade. We’ve watched the rise of e-commerce, we’ve seen the changing nature of grocery shopping emerging globally and we’ve personally raised our expectations as consumers.
As the industry continues to transform and supermarket giants up their game to increase market share, FMCG supply chain users are faced with a number of key challenges including cost minimalization, meeting increasingly diverse customer requirements and ensuring availability and fulfillment of customer demand.

What is driving change in this environment?

Consumers shopping habits and expectations are changing at a rate previously unimagined. Traditional requirements of convenience and cost are no longer the only forces impacting purchasing decisions. Consumers have learned they are no longer constrained by purchasing options dictated by retailers. They can access what they want, where and whenever they want it; and what they want is more choice. This has resulted in more diversity in demand ranging from global online retailing, to an increased focus on locally sourced, organic and sustainably-sourced products. This behaviour has fragmented the market into smaller segments meaning that sales units are moving from bulk shipments to increasingly more customized offers encompassing a larger variety of products, with smaller quantities of orders at a higher frequency in turnover.
This market fragmentation has disrupted what has basically been 14 years of growing market share for the dominant retailers, thus making room for new competitors to enter the market and driving retailers to expand their offering into other retail segments. Organisations like Aldi, a discount grocer, are increasing their market share and challenging the status quo of the big grocery chains. The competitive tension that is being created by new entrants is fuelling the drive to find efficiencies in every part of the supply chain.

Responding to change

While today’s FMCG supply chains can be viewed as efficient, it is becoming increasingly apparent that the traditional assumptions driving infrastructure investment will change. To respond to these transformative changes, the FMCG and, in particular, the food industry supply chains, will require adaptations to reduce costs and increase supply chain responsiveness.

Distribution facilities for FMCGs

The nature of the FMCG industry means deliveries need to happen constantly, with the flexibility to adapt to seasonal fluctuations (peaks can be as high as 400% annually) and shorter life spans (driven by both perishability and changes in customer taste). All this has to be catered for while continuing to seek greater supply chain efficiency by streamlining processes and maintaining economies of scale to meet price expectations when moving from “paddock to plate”.
Over the past two years we’ve watched as large players in the FMCG space have begun to advance their thinking on warehouses, operations and supply chains to remain competitive in a dynamic industry and service consumers as required. An example of the competitive edge resulting from this approach can be seen by Amazon’s warehouse in California.
With retailers restructuring their own supply chain, manufacturers are forced to carry higher volumes of stock to meet demanding service levels. Optimizing storage space efficiency has become a significant challenge, forcing the take-up of advancements in industrial automation like ASRS, AGVS, voice picking and mobile device-driven fulfilment solutions. We understand through industry sources that the payback on technological investments within warehouses (for example, automation and robotics) is typically around seven years — a hefty investment but one that can result in a significant benefit to meeting the changing demands of consumers, particularly for those who adopted the technology early.
The tools required to manage logistics also need to evolve to cope with the shifting landscape. Real-time visibility of the supply chain is paramount, with warehouse and transport management systems being increasing reliant on high speed, high capacity communication network connection and requiring consistent and ‘fail safe’ energy supply to maintain the increasing data demand needed to support inventory, business and customer interactions. Quality facilities also need to be considered to meet the needs of a smaller, more technically-skilled workforce to support the increasingly sophisticated and technologically-driven environment that is developing for FMCG supply chain developments.

Transport

While capital expenses within the transportation industry continue to rise, FMCGs, food manufacturers and growers are experiencing “sticker shock” as they review the pressures of greater efficiency in production, fragmented demand and more frequent replenishment cycles. This has been exacerbated by upward pressures in supply chain costs, such as the current driver shortage in many places, which has driven up wages across the industry.
Driver shortages have resulted in an increased focus on utilization of transport resources to try and combine efficiencies of scale for larger vehicles travelling long distances, meanwhile the effectiveness of smaller vehicles undertaking multiple customer deliveries within congested urban environments is another priority. Minimizing empty space within a vehicle and reducing travel distances are two ways to boost utilization and decrease transport associated costs. This can be supported by smaller distribution centers or forward-stocking locations in city fringe locations where the providers can access their target demographic within a 30-minute time frame. Forward thinking FMCG supply chain users could also potentially leverage cross-customer network opportunities, including leveraging a neighborhood’s demand density across multiple suppliers to drive up transport utilization and reduce service frequency.
Distribution facilities and locations, along with a robust supply chain strategy, will play a critical role in the success of FMCG operators in the coming 12 to 18 months. In order to maintain a competitive position and access key demand demographics, businesses will need to consider where they should be located and what’s the most efficient way of getting their products to their final destinations.
As a National Director with Colliers International’s Australian Occupier Services team, Danny focuses on industrial and commercial occupiers and corporate clients with a presence in Australia and facilities across the globe.]]>https://knowledge-leader.colliers.com/danny_green/the-challenges-faced-by-fmcg-supply-chain-users/feed/0Luxury Expands to Asian Markets Amid Uncertain Impact of China-U.S. Trade Tensionshttps://knowledge-leader.colliers.com/anjee-solanki/luxury-expands-to-asian-markets-amid-uncertain-impact-of-china-us-trade-tensions/
https://knowledge-leader.colliers.com/anjee-solanki/luxury-expands-to-asian-markets-amid-uncertain-impact-of-china-us-trade-tensions/#respondMon, 26 Nov 2018 15:58:59 +0000http://knowledge-leader.colliers.com/?p=7323

This summer an influx of mid-range and luxury fashion and beauty brands expanded into the Asia-Pacific region. From Chanel to Prada, De Beers to Bvlgari, Brooks Brothers to Canada...

This summer an influx of mid-range and luxury fashion and beauty brands expanded into the Asia-Pacific region. From Chanel to Prada, De Beers to Bvlgari, Brooks Brothers to Canada Goose – retailers continue to make strategic play to the Far East. Rather than concentrate on a single market, brands are branching out to where their consumers are, proving once again that omnichannel reigns supreme.
Luxury retailers are listening closely to the Street and monitoring where the new cash flow is originating. According to the Bain Luxury Report, the retail revenue stream flows East and West, with close to half of the global online luxury sales (€23 billion) dominated by The Americas, and significant growth emerging in Europe and Asia. Asia is a definitive choice, and many have the larger urban markets of China in their sights, specifically Beijing, which joins the ranks of well-known cities Shanghai, Tokyo, Dubai, Singapore and Seoul as the continent’s leading fashion capitals.
China has been a particularly strong driver behind this shift, with its consumers contributing a whopping 32%to the overall global market fueling sales at LVMH, Burberry and Gucci.
More than one billion people live in China, and 6% of them are considered affluent. That percentage represents 60 million consumers. That’s a lot of leverage! Luxury retail sales in China soared between 2016 and 2017, at approximately 142 billion yuan ($22.07 billion) as reported by Bain & Company. Outside of the Middle Kingdom, Asia forecasts a strong increase in the fashion and luxury markets with a similar uptick in 2018.
Of course, that was before the trade tension began heating up between the U.S. and China. Historically, the U.S. and Japan have held the top two slots in world economy rankings. But China’s accelerated economic growth in recent years has surpassed Japan’s GDP, and China is now the second-largest economy behind the U.S. As both nations duel for protectionism, the tariffs they are imposing will undoubtedly impact the global supply chain and manufacturing efforts of companies worldwide. Consider that the majority of manufacturing facilities housed overseas allow for everything to be sourced in one location from fabric production to trim and accessory assemblage to packaging and design.
The list of products affected by the tariffs is long and includes everything from soybeans and steel to fashion and apparel-related products. The final phase, if implemented by end of year, will increase tariffs to 25% on foreign goods imported to the U.S. from China, with lesser tariffs imposed on Canada, Europe and Mexico. Regardless, the implication is clear: coveted items manufactured outside of the States will become increasingly expensive, and retailers who do not absorb the costs may very well pass those expenses on to consumers.
Consumers worldwide will feel the shift, and that includes those in China, too. Stringent rules have been foisted on travelers upon re-entry to China from international markets and these jet-setters are subject to invasive searches by border patrol officers looking to unearth imported goods in excess of the duty-free allowance of 5,000 yuan ($727). This has tempered the ‘gray market trade’ where Chinese entrepreneurs, also known as the daigou community, buy products abroad (mostly in the U.S., Australia and New Zealand) to resell at a markup to domestic shoppers. And some luxury retailers are responding to the tariff by lowering their prices, like Louis Vuitton China, for example, who decided to mark down prices on a wide range of items to fully support the government’s efforts to reduce the price premium for luxury goods sold in China and overseas.
One avenue for continued growth in China is e-commerce. Several luxury retailers are exploring opportunities to expand their business across retail channels Baidu, Tencent, JD.com and most notably with Alibaba, China’s largest online marketplace. Richemont, the Swiss watch manufacturer, recently partnered with the e-commerce giant to expand their online offering. The partnership also leverages exposure for Richemont’s subsidiary, Yoox-Net-a-Porter’s luxury catalog, to Alibaba’s larger affluent audience. China, as can be expected, has also jumped on the bandwagon with JD.com’s sizable investment in Farfetch prior to its IPO.
With the uncertainty of repercussions from the U.S.’ threat to add another $267 billion worth of imports — essentially 100% coverage of U.S.-China trade — looming, China’s retail e-commerce may be the final frontier.
What are your thoughts about the trade tensions? How have they impacted your business? What are you most concerned about? Join in on the conversation tweet me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>

This summer an influx of mid-range and luxury fashion and beauty brands expanded into the Asia-Pacific region. From Chanel to Prada, De Beers to Bvlgari, Brooks Brothers to Canada...

This summer an influx of mid-range and luxury fashion and beauty brands expanded into the Asia-Pacific region. From Chanel to Prada, De Beers to Bvlgari, Brooks Brothers to Canada Goose – retailers continue to make strategic play to the Far East. Rather than concentrate on a single market, brands are branching out to where their consumers are, proving once again that omnichannel reigns supreme.
Luxury retailers are listening closely to the Street and monitoring where the new cash flow is originating. According to the Bain Luxury Report, the retail revenue stream flows East and West, with close to half of the global online luxury sales (€23 billion) dominated by The Americas, and significant growth emerging in Europe and Asia. Asia is a definitive choice, and many have the larger urban markets of China in their sights, specifically Beijing, which joins the ranks of well-known cities Shanghai, Tokyo, Dubai, Singapore and Seoul as the continent’s leading fashion capitals.
China has been a particularly strong driver behind this shift, with its consumers contributing a whopping 32%to the overall global market fueling sales at LVMH, Burberry and Gucci.
More than one billion people live in China, and 6% of them are considered affluent. That percentage represents 60 million consumers. That’s a lot of leverage! Luxury retail sales in China soared between 2016 and 2017, at approximately 142 billion yuan ($22.07 billion) as reported by Bain & Company. Outside of the Middle Kingdom, Asia forecasts a strong increase in the fashion and luxury markets with a similar uptick in 2018.
Of course, that was before the trade tension began heating up between the U.S. and China. Historically, the U.S. and Japan have held the top two slots in world economy rankings. But China’s accelerated economic growth in recent years has surpassed Japan’s GDP, and China is now the second-largest economy behind the U.S. As both nations duel for protectionism, the tariffs they are imposing will undoubtedly impact the global supply chain and manufacturing efforts of companies worldwide. Consider that the majority of manufacturing facilities housed overseas allow for everything to be sourced in one location from fabric production to trim and accessory assemblage to packaging and design.
The list of products affected by the tariffs is long and includes everything from soybeans and steel to fashion and apparel-related products. The final phase, if implemented by end of year, will increase tariffs to 25% on foreign goods imported to the U.S. from China, with lesser tariffs imposed on Canada, Europe and Mexico. Regardless, the implication is clear: coveted items manufactured outside of the States will become increasingly expensive, and retailers who do not absorb the costs may very well pass those expenses on to consumers.
Consumers worldwide will feel the shift, and that includes those in China, too. Stringent rules have been foisted on travelers upon re-entry to China from international markets and these jet-setters are subject to invasive searches by border patrol officers looking to unearth imported goods in excess of the duty-free allowance of 5,000 yuan ($727). This has tempered the ‘gray market trade’ where Chinese entrepreneurs, also known as the daigou community, buy products abroad (mostly in the U.S., Australia and New Zealand) to resell at a markup to domestic shoppers. And some luxury retailers are responding to the tariff by lowering their prices, like Louis Vuitton China, for example, who decided to mark down prices on a wide range of items to fully support the government’s efforts to reduce the price premium for luxury goods sold in China and overseas.
One avenue for continued growth in China is e-commerce. Several luxury retailers are exploring opportunities to expand their business across retail channels Baidu, Tencent, JD.com and most notably with Alibaba, China’s largest online marketplace. Richemont, the Swiss watch manufacturer, recently partnered with the e-commerce giant to expand their online offering. The partnership also leverages exposure for Richemont’s subsidiary, Yoox-Net-a-Porter’s luxury catalog, to Alibaba’s larger affluent audience. China, as can be expected, has also jumped on the bandwagon with JD.com’s sizable investment in Farfetch prior to its IPO.
With the uncertainty of repercussions from the U.S.’ threat to add another $267 billion worth of imports — essentially 100% coverage of U.S.-China trade — looming, China’s retail e-commerce may be the final frontier.
What are your thoughts about the trade tensions? How have they impacted your business? What are you most concerned about? Join in on the conversation tweet me @anjeesolankiCRE.
Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape … driving retailers, landlords and developers crazy!]]>https://knowledge-leader.colliers.com/anjee-solanki/luxury-expands-to-asian-markets-amid-uncertain-impact-of-china-us-trade-tensions/feed/0The Hunt for Warehouse Space — Should We Be Looking Across the Pacific for Clues?https://knowledge-leader.colliers.com/editor/hunt-warehouse-space-looking-across-pacific-clues/
https://knowledge-leader.colliers.com/editor/hunt-warehouse-space-looking-across-pacific-clues/#respondWed, 21 Nov 2018 14:21:13 +0000http://knowledge-leader.colliers.com/?p=7317

The U.S. industrial market keeps rising. Will distribution centers rise up with it? Many believe the multi-story distribution center is the answer to solving the increased demand on e-commerce shipping...

The U.S. industrial market keeps rising. Will distribution centers rise up with it? Many believe the multi-story distribution center is the answer to solving the increased demand on e-commerce shipping and dense populations in land-constricted geographies. Since late 2017, there have been a few multi-story warehouse projects that have launched across the U.S., demonstrating that demand is rising in the commercial real estate world for this relatively-new concept.
Prologis’ Seattle development is America’s first new construction multi-story warehouse, a nearly 600,000-square-foot three-story property with truck ramps and loading docks on the second floor. Additionally, a few multi-story warehouses are proposed or already underway in New York City. While the U.S. currently has only a few true multi-story warehouses in progress, perhaps we can take cues from our neighbors across the Pacific who are advancing quickly in this space.

Is There Really Nowhere to Go but Up?

It’s no secret that land is scarce in population-dense core markets like New York City, Chicago and Los Angeles, where coveted final-mile distribution centers are crucial — but will building up be a growing trend that reaches secondary markets? James Breeze, Colliers’ National Director of Industrial Research believes there is quite a way to go. “Since multi-story warehouses cost about double what a single-story warehouse costs to build, have much higher rents, and aren’t as functional because of difficulties with logistics like truck turning, a multi-story warehouse would only be in demand in a market where an occupier would willingly pay a very high rent for not much functionality,” Breeze notes. “For now, dense population centers with limiting space constraints are prime opportunities for multi-level industrial development. But with growing populations, even secondary markets will encounter industrial space challenges in some capacity.” So then, what will industrial development look like there during the not-so-distant future?

Taking Cues from Japan

Asian markets have already adopted the widespread use of multi-story warehouses. Prologis, one of the leading providers of industrial real estate and warehouse space in Asia, has industrial property in 25 different Asian markets: 19 in China, 5 in Japan, and 1 in Singapore — many of which are multi-story. Here we’ll look at two secondary markets in Japan where multi-story warehouses are not so out of the ordinary.
Fukuoka is a city with a population density of 11,605 people per square mile compared to Manhattan’s 27,000 people per square mile. One of Japan’s fastest-growing cities, Fukuoka sits halfway between Shanghai and Tokyo, two global financial hubs, making it a rapidly growing hub for logistics and distribution. In the northeastern part of Japan’s mainland sits Sendai, with a less concentrated population density in comparison to Fukuoka at about 3,563 people per square mile. The wholesale, retail and electronics industries have a strong presence here, which has driven the demand for more industrial property. About 14% of the area’s economy comes from manufacturing.

Boston

One secondary market poised to see multi-story warehouses in the near future is Boston. As the largest city in New England, Boston spans 90 square miles and is home to one of the most densely populated regions in the U.S. While neighboring New Hampshire is a growing distribution market with year-to-date absorption of 2.4 million square feet, it may not be close enough for final-mile distribution or have suitable land to quench long-term facility demand.
The Boston-Worcester-Providence area, which also includes parts of Connecticut and New Hampshire, has a regional population of over 8 million people. According to a 2018 Politico study, Boston took second place in U.S. cities that have the most millennial influence with 23% of Boston’s population between the ages of 25-32, and an overall median age of 32. And for today’s millennial consumer, timeliness of deliveries ranks high on their list of requirements for purchase satisfaction.
With dense population and limited space for expansion, the question becomes how long before Boston runs out of land zoned for industrial and companies are forced to build vertically?

Miami

The Miami metropolitan area, which also includes Fort Lauderdale and Port St. Lucie, FL, is another secondary market that shows signs that multi-story warehousing may be in its future. With a regional population of nearly 7 million people, Miami is the most populous metro region in the Southern U.S. It is also one of the largest urban areas in the country, and people between the ages of 20 and 44 make up about half of its population. From 2010-2015, Miami’s urban core grew by more than 10%, with a 42% growth of educated millennials in the urban core.
Miami proper is comprised of more than 400,000 people in 36 square miles, making it one of the most densely populated cities in the U.S, sharing this spotlight with New York City, San Francisco, Boston, Chicago and Philadelphia. Miami has the third tallest skyline in the U.S. with over 300 high-rises. While there is currently 7 million square feet of industrial product under construction in the region, much of it is located away from core population areas, and long-term there is a little land to sustain this level of development. Will multi-story distribution centers be part of that vertical landscape?

San Francisco

While San Francisco is typically regarded as one of the top core U.S. markets, it’s certainly more of a secondary market when it comes to industrial property. This west coast tech-hub is most likely where we’ll see the next multi-story warehouse developments, well before other secondary markets like Miami and Boston. A mecca for young professionals, the San Francisco area is a hotspot for final-mile distribution. Although there’s abundant land available in Stockton and Central Valley, there’s nothing in the immediate area — making it a prime contender for where multi-story warehouses could catch on first in terms of secondary industrial markets.

The Pendulum is Swinging…Albeit Slowly

It’s likely that multi-story warehousing will gain more momentum in core U.S. markets in the next few years, and it’s also plausible that we’ll see development in secondary markets in the decades to come. As e-commerce continues to captivate the retail world, young consumers increasingly expect faster delivery times when purchasing goods online.
The correlation between final-mile distribution centers and millennial influence is strong: Consumers between the ages of 18-34 make up the largest share of Amazon Prime members, at 39%. E-commerce giant Amazon, and its subscription service Amazon Prime, is a staple in the lives of younger American consumers. Prime promises 2-day delivery to all members, with 1-day and often within a few hours’ delivery in select metros. To keep up with consumer demand for goods to be delivered as quickly as possible, final-mile distribution centers need close proximity to their target populations and will likely be more abundant in both core and secondary U.S. markets in the years to come. With a lack of available space to build traditional single-story warehouses in these densely populated and land-constrained cities, third-party logistics companies will need to get creative and start building up in order to keep up.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>

The U.S. industrial market keeps rising. Will distribution centers rise up with it? Many believe the multi-story distribution center is the answer to solving the increased demand on e-commerce shipping...

The U.S. industrial market keeps rising. Will distribution centers rise up with it? Many believe the multi-story distribution center is the answer to solving the increased demand on e-commerce shipping and dense populations in land-constricted geographies. Since late 2017, there have been a few multi-story warehouse projects that have launched across the U.S., demonstrating that demand is rising in the commercial real estate world for this relatively-new concept.
Prologis’ Seattle development is America’s first new construction multi-story warehouse, a nearly 600,000-square-foot three-story property with truck ramps and loading docks on the second floor. Additionally, a few multi-story warehouses are proposed or already underway in New York City. While the U.S. currently has only a few true multi-story warehouses in progress, perhaps we can take cues from our neighbors across the Pacific who are advancing quickly in this space.

Is There Really Nowhere to Go but Up?

It’s no secret that land is scarce in population-dense core markets like New York City, Chicago and Los Angeles, where coveted final-mile distribution centers are crucial — but will building up be a growing trend that reaches secondary markets? James Breeze, Colliers’ National Director of Industrial Research believes there is quite a way to go. “Since multi-story warehouses cost about double what a single-story warehouse costs to build, have much higher rents, and aren’t as functional because of difficulties with logistics like truck turning, a multi-story warehouse would only be in demand in a market where an occupier would willingly pay a very high rent for not much functionality,” Breeze notes. “For now, dense population centers with limiting space constraints are prime opportunities for multi-level industrial development. But with growing populations, even secondary markets will encounter industrial space challenges in some capacity.” So then, what will industrial development look like there during the not-so-distant future?

Taking Cues from Japan

Asian markets have already adopted the widespread use of multi-story warehouses. Prologis, one of the leading providers of industrial real estate and warehouse space in Asia, has industrial property in 25 different Asian markets: 19 in China, 5 in Japan, and 1 in Singapore — many of which are multi-story. Here we’ll look at two secondary markets in Japan where multi-story warehouses are not so out of the ordinary.
Fukuoka is a city with a population density of 11,605 people per square mile compared to Manhattan’s 27,000 people per square mile. One of Japan’s fastest-growing cities, Fukuoka sits halfway between Shanghai and Tokyo, two global financial hubs, making it a rapidly growing hub for logistics and distribution. In the northeastern part of Japan’s mainland sits Sendai, with a less concentrated population density in comparison to Fukuoka at about 3,563 people per square mile. The wholesale, retail and electronics industries have a strong presence here, which has driven the demand for more industrial property. About 14% of the area’s economy comes from manufacturing.

Boston

One secondary market poised to see multi-story warehouses in the near future is Boston. As the largest city in New England, Boston spans 90 square miles and is home to one of the most densely populated regions in the U.S. While neighboring New Hampshire is a growing distribution market with year-to-date absorption of 2.4 million square feet, it may not be close enough for final-mile distribution or have suitable land to quench long-term facility demand.
The Boston-Worcester-Providence area, which also includes parts of Connecticut and New Hampshire, has a regional population of over 8 million people. According to a 2018 Politico study, Boston took second place in U.S. cities that have the most millennial influence with 23% of Boston’s population between the ages of 25-32, and an overall median age of 32. And for today’s millennial consumer, timeliness of deliveries ranks high on their list of requirements for purchase satisfaction.
With dense population and limited space for expansion, the question becomes how long before Boston runs out of land zoned for industrial and companies are forced to build vertically?

Miami

The Miami metropolitan area, which also includes Fort Lauderdale and Port St. Lucie, FL, is another secondary market that shows signs that multi-story warehousing may be in its future. With a regional population of nearly 7 million people, Miami is the most populous metro region in the Southern U.S. It is also one of the largest urban areas in the country, and people between the ages of 20 and 44 make up about half of its population. From 2010-2015, Miami’s urban core grew by more than 10%, with a 42% growth of educated millennials in the urban core.
Miami proper is comprised of more than 400,000 people in 36 square miles, making it one of the most densely populated cities in the U.S, sharing this spotlight with New York City, San Francisco, Boston, Chicago and Philadelphia. Miami has the third tallest skyline in the U.S. with over 300 high-rises. While there is currently 7 million square feet of industrial product under construction in the region, much of it is located away from core population areas, and long-term there is a little land to sustain this level of development. Will multi-story distribution centers be part of that vertical landscape?

San Francisco

While San Francisco is typically regarded as one of the top core U.S. markets, it’s certainly more of a secondary market when it comes to industrial property. This west coast tech-hub is most likely where we’ll see the next multi-story warehouse developments, well before other secondary markets like Miami and Boston. A mecca for young professionals, the San Francisco area is a hotspot for final-mile distribution. Although there’s abundant land available in Stockton and Central Valley, there’s nothing in the immediate area — making it a prime contender for where multi-story warehouses could catch on first in terms of secondary industrial markets.

The Pendulum is Swinging…Albeit Slowly

It’s likely that multi-story warehousing will gain more momentum in core U.S. markets in the next few years, and it’s also plausible that we’ll see development in secondary markets in the decades to come. As e-commerce continues to captivate the retail world, young consumers increasingly expect faster delivery times when purchasing goods online.
The correlation between final-mile distribution centers and millennial influence is strong: Consumers between the ages of 18-34 make up the largest share of Amazon Prime members, at 39%. E-commerce giant Amazon, and its subscription service Amazon Prime, is a staple in the lives of younger American consumers. Prime promises 2-day delivery to all members, with 1-day and often within a few hours’ delivery in select metros. To keep up with consumer demand for goods to be delivered as quickly as possible, final-mile distribution centers need close proximity to their target populations and will likely be more abundant in both core and secondary U.S. markets in the years to come. With a lack of available space to build traditional single-story warehouses in these densely populated and land-constrained cities, third-party logistics companies will need to get creative and start building up in order to keep up.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.]]>https://knowledge-leader.colliers.com/editor/hunt-warehouse-space-looking-across-pacific-clues/feed/0